Bitcoin’s October pullback reflects a “liquidity-driven mid-cycle reset,” said analysts Nathan Frankovitz and Matthew Sigel in a VanEck market report on Wednesday.
“Leverage has normalized, on-chain activity is rising, and digital assets’ macro role continues to strengthen,” they added.
Bitcoin is currently trading down 14% from its all-time high and has failed to recover from the record leverage flush earlier this month.
With leverage now at the 61st percentile and prices near one-year lows relative to gold, this appears to be a mid-cycle correction rather than the start of a bear market, the analysts noted.
No Bear Market Yet
Global M2 growth explains over half of Bitcoin’s price variance, reinforcing its role as an anti-money printing asset. According to MacroMicro, global M2 supply has grown by 6.8% since the beginning of the year as central banks continue to print money. The report identified two factors in addition to M2 supply that influence Bitcoin’s price and market movements: global liquidity, leverage, and on-chain activity.
Nearly 73% of Bitcoin’s price variance since October 2020 has been explained by changes in futures open interest, while there are strong correlations between blockchain revenues and token prices, which demonstrate real adoption.
The investment manager said it wasn’t willing to bet against Bitcoin with fiat debasement accelerating in recent years.
“With Bitcoin comprising ~2% of global money supply, we believe digital assets can play an increasingly important role in investment portfolios; arguably, owning less than ~2% Bitcoin or other digital assets is implicitly expressing a short position on the asset class.”
Caution: Volatility Ahead
The sentiment has been echoed by several analysts recently who opined that the bull market is not over yet. However, there is still a lot of volatility ahead, said investor Ted Pillows.
US Treasury Secretary Scott Bessent expects lower inflation next month, which means this week’s CPI report could disappoint, he added.
“High inflation usually pressures crypto, since it raises expectations for tighter monetary policy. If CPI comes in lower than expected, crypto could bounce.”
MN Fund founder Michaël van de Poppe echoed the sentiment, stating, “markets continue to fumble until the next big macroeconomic event comes in: CPI.”
“That’s going to provide a direction for the markets of Bitcoin, and also what we could expect from the Fed.”
The delayed CPI report for September is scheduled for release on Friday.