Cycles of the cryptocurrency market

Cycles of the cryptocurrency market

In bear markets, interest in the Bitcoin protocol usually weakens. Towards the end, only bitcoiners, “smart money” and miners remain. These agents are buyers of last resort, and they all have the same goal: to accumulate as many Bitcoins as possible before others start claiming it.

And although, according to , there are more than 13,000 tokens, this rule applies to them as well. The patterns we see in bear markets are dominated by long-term accumulators. The graph below shows how this accumulation constantly peaks during the darkest times.

Bull markets are very different. Supply and demand enter into a dynamic interaction between new speculators and old holders. In bull markets, we see how “old hands” distribute their assets at high prices among newly arrived traders.

This chart shows the waves of cyclical accumulation and distribution that occur in bear and bull markets. Long-term holders accumulate during bear markets, and dump their coins on new speculators in bull markets.

When investors enter and exit the market, they leave certain traces reflecting their beliefs and spending patterns.

Bitcoiners and Smart Money

Bitcoin and smart money work in a similar way. They tend to accumulate BTC as cheaply as possible and lock in profits at the later stages of the bull crypto market (if they really decide to lock in profits). Your total assets grow during bearish movements.

We can observe this in HODL wave metrics. The oldest stripes (cold colors) are increasing in thickness, which suggests that these coins are maturing at the mercy of strong hands. The thicker the cold bands become, this indicates that most of the supply is concentrated in the hands of long-term holders.

We see that these old coins are spent during periods of high volatility, in particular, during rallies, holders throw off old coins to take advantage of the strength of the market.

Interestingly, in the current bull market, the spending of old coins has slowed down. This suggests that there are fewer and fewer old currencies in motion, and that the belief in their preservation remains strong.

The increase in the share of coins among young holders indicates that bitcoiners and smart money have dumped most of their assets on new speculators.

The “Age of Spent Issues” bars indicate the age of coins spent on a given day. The graph below has been filtered to display only coins older than one year (an indicator that they were in the hands of holders).

We see that these old coins tend to be spent during periods of high volatility, in particular:

  • In bull markets, holders sell their old coins to take advantage of the strength of the market.
  • In bear markets during capitulation events and bear market rallies.

Interestingly, in the current bull market, the spending of old coins has slowed down recently. This suggests that there are fewer and fewer old currencies in motion and that the belief in their preservation remains strong.

Applying a long-term moving average (e.g. 90 DMA) helps us to smooth out the noise and identify these macro changes. This can be used to approximate the peaks and troughs of the market.

The Destruction of Coin Days indicator can be used to understand the spending patterns of long-term holders.

Short-term speculators

The instability of Bitcoin is very cruel when it comes to punishing weak hands. The crypto market patiently rewards long-term holders and punishes inexperienced speculators and those who enter the later stages of the bull market.

Long-term holders know this, and therefore wait for market euphoria to peak before taking profits by selling their crypto assets at a high price to newcomers.

This creates a cyclical model of wealth transfer.

As the old holders distribute assets into new hands, the share of young cryptocurrencies increases. The HODL Realized Cap waves are an ideal tool to monitor this wealth movement in the form of an increase in the supply of young assets.

In the chart below, we see that in the later stages of the bull markets of 2013 and 2017, the height of the bands of young currencies (warm colors) reaches a peak in three different cases. These peaks usually correspond to the biggest rises and corrections.

In the January bull market of 2021, we saw the first peak in the supply of young cryptocurrencies. What is interesting is that warm colors (young currencies) did not have such high peaks in this cycle. This is probably a reflection of two phenomena:

  • Increasing the conviction of holders (including new institutional buyers) as the Bitcoin thesis is verified and confirmed at the macro stage.
  • The growth of speculation with the help of derivatives outside the network, due to which young currencies leave a smaller footprint in the chain.

This chart shows how bull markets have seen an increase in the supply of coins in the hands of new holders.

With this transfer of wealth in mind, we can look at the ratio of the supply of old tokens (1-2 years, from 1 to 2 years, highlighted in blue) and compare it with the supply of young ones (1-1 months, from 1 week to 1 month, in orange).

The end of bear markets (green zones): the supply of assets from 1 to 2 years is the maximum, and the supply of assets from 1 week to 1 month is the minimum. This is the result of the accumulation of long-term holders.

The end of bull markets (red zones): The supply of coins from 1 week to 1 month is relatively large (as more speculators appear), while coins from 1 year to 2 years old are declining significantly because holders are selling their old coins.

This chart shows how by the end of bull markets, the number of old currencies decreases as a result of the sale of holders to new speculators.

Based on these observations, we can construct the metric Realized HODL ratio (RHODL), which is the ratio between the supply of coins from 1 to 2 years and the supply of coins from 1 week to 1 month. This allows us to build an oscillator that describes the cyclical nature of these wealth transfer events.

The peak of the bull market comes when old hands transfer most of their wealth to new hands, increasing the liquidity supply (maximum of new holders, high RHODL).

A bear market pot occurs when old hands accumulate most of the coins from new hands, reducing the supply (maximum strong hands with RHODL).

The RHODL indicator serves as an oscillator for understanding the evolution of currencies in old and young hands. When most of the coins are in young hands, it means that the old hands have finished issuing coins, which may indicate the near end of the bull market.


The dynamics of the cycle also affects miners with proof of work. Miners incur large non-refundable costs for equipment and electricity. To cover their expenses, they are forced to sell currency, which is usually expressed in paper currency. Thus, the analysis of miners’ income and their assets can be useful for assessing their moods.

In the graph below, we see the balance of cryptocurrency miners since 2016. Here we see three typical phases:

  1. An increase in sales and a decrease in their stocks towards the end of the bull market, as miners lock in profits.
  2. The decline in coin sales during the bear market, when miners cut costs, stop their equipment or capitulate, giving way to stronger miners, who thus receive most of the hash power.
  3. Accumulation of holdings in the early stages of bull markets as the profitability of miners is restored and prices rise.

Finally, we can analyze the financial equation of mining operations. As a rule, miners work in the long term. Given the instability of the Bitcoin price, miners make decisions based on their long-term cash flow forecasts.

The Puella set is an indicator built on this observation: the ratio between the current income of miners and their average 365-day income. This creates an oscillator based on the cumulative profitability of mining.

When the current income is significantly higher than the annual average (high Puell coefficient), miners are very profitable. In this case, miners accumulate coins at a price below the market, and have an incentive to sell their assets with a high margin. This leads to an increase in the supply of coins on the market.

When the current income is significantly lower than the annual average (low Puell coefficient), miners experience financial difficulties and are forced to stop their equipment. This usually leads to capitulation and the formation of lows in a bear market.


The balance of supply and demand in the Bitcoin market is an extremely dynamic system, despite its cyclical nature. These on-chain analysis tools allow us to get some idea of changes in the structure of expenses of holders, speculators and miners.

Now you know that there are several interesting models for analysis in the bull market:

  • Holders (old coins) give away their wealth.
  • New traders (young currencies) are increasing their positions.
  • Miners reach the maximum of their profitability.

All market cycles are unique, but a person’s reaction to profits, losses and incentives is predictable. The point is to know what to look for in the chain data.