Markets in Maximum Pain: Is the Bottom in?

February was a brutal month for financial markets, with a relentless barrage of tariff news affecting Europe, China, Canada, Mexico, and more. These developments have fueled fears of prolonged inflation, raising concerns that the Federal Reserve will maintain high interest rates for an extended period. The consequence? A heightened risk of recession due to extended quantitative tightening (QT). This fear has triggered sharp declines in equities, with Tesla, for instance, plummeting 30% in just a couple of months.

President Donald Trump appears to be testing his influence on the global stage. As a leader who measures his success by stock market performance, it is increasingly evident that he desires lower interest rates. He has repeatedly stated that rates are too high and should be cut. One way to accelerate this process is by creating panic in the stock market, thereby pressuring the Federal Reserve to act sooner. Market sentiment has already shifted, with expectations for the next rate cut moving from November 2025 to June 2025, aligning with the Fed’s anticipated QT timeline.

Is Bitcoin’s 24% Drop Cause for Concern?

Before diving into key quantitative metrics, let’s assess whether Bitcoin’s recent 24% decline is extraordinary. Historical precedent suggests otherwise. In previous bull runs, Bitcoin experienced multiple 30% corrections and even a staggering 53% drop in the last cycle. By these standards, the current decline remains within historical norms.

🌟 To access the interactive plots of these metrics and detailed explanations (including video breakdowns), just click on the charts.

Price Power Law Deviation

Bitcoin’s deviation from its power law fit line is a crucial indicator of the market phase. This fit line represents Bitcoin’s "fair value" based on historical data. Significant deviations from this line can indicate market tops or bottoms. When Bitcoin’s price exceeds the power law line by more than 70%, it typically signals a cycle peak. This cycle, the highest deviation recorded was only 21.17% on December 16th, far from previous cycle peaks.

Total Crypto Market Capitalization Power Law Deviation

Analyzing the total crypto market cap (TCMC) deviation from its power law trend provides insights into the market’s overall status. When TCMC deviates more than 70% above its fair value, it often signals a market peak. In this cycle, however, the maximum deviation reached 0%, meaning the market only touched the fair value fit line in March 2024.

Free Float Market Value to Realized Value (FFMVRV)

FFMVRV assesses Bitcoin’s valuation by comparing its Free Float Market Cap (FFMcap) to its realized cap. Historically, Bitcoin tops have seen FFMVRV values ranging from 2.26 to 4.0. In the 2021 cycle, values ranged from 2.257 to 3.092. This cycle, the highest recorded FFMVRV was 1.89, indicating that Bitcoin has not yet reached typical cycle top levels. Even with diminishing returns, a top below 2.0 would be highly unusual.

Net Unrealized Profit/Loss (NUPL)

NUPL measures market sentiment by comparing unrealized profits and losses. Previous cycle peaks saw NUPL values exceeding 0.66, with Bitcoin’s 2021 peaks reaching 0.66 to 0.75. In this cycle, the highest NUPL value recorded was 0.63, still below prior cycle peaks.

Are We at the Market Top?

Various quantitative indicators suggest that the market top is not in. Traders and investors who lack a deep understanding of Bitcoin cycles and crypto market volatility may have panic-sold on the tariff news. However, Bitcoin’s current drawdown remains within historical norms.

Trump’s economic manoeuvres pose risks to financial markets, particularly for high-volatility assets. While downside risks persist, prices below $80K present an attractive opportunity for crypto enthusiasts and institutions. Notably, the CME gap between $78K-$80K was nearly filled, a level which historically was filled before we moved to new all time highs.

Additionally, with most SEC cases against crypto companies being dropped and regulatory clarity emerging in the crypto market, I still believe we will see values greater than $180K this cycle. Personally, I took the opportunity to buy the dip at $80K (not financial advice), as Bitcoin’s risk remains below 43%, aligning with my risk tolerance given the market’s current state. With strong institutional interest and robust quantitative signals, the data does not support the notion that the bull run has ended.

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