Bitcoin on-chain narrative: Why this bull run has just begun

Author: CryptoCompound, Translated by Shaw Jinse Finance

The Quiet Power Beneath the Surface

Market headlines are clamoring—Bitcoin hits new highs, Ethereum reclaims dominance, and altcoins are thriving. However, beneath the surface, on-chain data tells a quieter, more powerful story.

Every major bull run begins long before the public realizes it. The first half of a bull run is often incredibly challenging—investors await "better entry points," traders exit at every breakout, and skeptics declare the market overextended. However, underlying fundamental signals of the blockchain—capital flows, holdings, and behavior—quietly reveal whether demand is sustainable or speculative.

Currently, these signals look strikingly similar to those of early 2020 and mid-2016—two periods when the market was just beginning its true expansion phase.

Let's analyze the evidence.

ETF Demand Becomes the New Structural Buy

The biggest change in this cycle is who is buying.

Last week alone, US-listed spot Bitcoin ETFs saw $3.24 billion in net inflows, the second-largest weekly inflow since their launch. This isn't retail frenzy, but rather institutional capital allocation through compliant, regulated channels. Every inflow into these funds represents an actual purchase of Bitcoin, which is then transferred to cold storage and removed from circulation.

This sustained inflow fundamentally shifts the balance of supply and demand for Bitcoin.

Previously, retail investor enthusiasm fueled Bitcoin's bull run; now, systematic inflows through ETFs are providing a steady stream of bargain-hunting. When traditional advisors can allocate to Bitcoin like they do to gold or stocks, the potential pool of funds available will expand from billions to trillions. We are witnessing what Fidelity calls Bitcoin's "institutional phase." It's no coincidence that the market surges amidst continued macroeconomic uncertainty. This isn't a speculative surge, but the beginning of a structural revaluation. Exchange balances are collapsing. While inflows through ETFs are increasing, exchange reserves are declining rapidly. Among major centralized exchanges, Bitcoin reserves have fallen to their lowest level since 2019—the lowest point in more than five years. In recent weeks, over 100,000 Bitcoins have been withdrawn from exchanges. This is significant because exchange balances act like a sellable supply inventory. When Bitcoin leaves exchanges, it's typically moved to custody, cold wallets, or long-term storage. Every bull run in Bitcoin's history has exhibited a pattern: the amount of Bitcoin circulating on exchanges gradually decreases while the price rises. This is a sign of confidence—holders' interest in trading decreases while their interest in long-term holding increases. Meanwhile, even after Bitcoin's price surpassed $125,000, the percentage of Bitcoin held by long-term holders (LTH) remained near all-time highs. Typically, all-time highs trigger large-scale profit-taking. But this time, many long-term investors chose to hold on. When Bitcoin is locked up by investors and not sold, even a small amount of new demand can have a significant impact on the price. This is the leverage inherent in Bitcoin's fixed supply. The Rise of "Illiquid Supply" Another key metric is "illiquid supply." It measures how much of Bitcoin's circulating supply sits in wallets with little or no spending history. According to Glassnode data, this figure recently reached a record high of 14.3 million Bitcoins, representing approximately 68% of all Bitcoins in existence. This means that almost seven out of every ten Bitcoins have effectively been removed from the market. This dynamic has led to what analysts call a "supply crunch." As ETF demand continues to grow and new issuance remains fixed at 3.125 BTC per block after the halving, available liquidity is further reduced. This is why each dip has been mild, with each pullback quickly absorbed by buying. Supply simply cannot meet demand. Where Are We in the Cycle? On-chain data helps determine where we are in the cycle—not through price, but through behavior. Two key metrics stand out: Short-Term Holder (STH) Cost Basis: This level has flipped from resistance to support—historically, this shift has marked the beginning of a sustained bull market. MVRV Ratio (Market Value to Realized Value): This metric measures the deviation of price from the overall cost basis. During the peaks of the frenzy (2017, 2021), MVRV soared to extremely high levels. Currently, the ratio is in neutral territory, closer to levels seen at the beginning of the bull market. In short: the market isn't overextended—it's healthy, regaining momentum, and backed by strong fundamentals. Stablecoins and Liquidity Expansion If Bitcoin is an asset, then stablecoins are the rails that allow funds to reach it. After nearly two years of decline, the global stablecoin market capitalization has begun to rebound, exceeding $314 billion. Historically, this indicator precedes periods of significant risk-on appetite in the cryptocurrency market by several months. The growth of stablecoins suggests that liquidity, the lifeblood of transactions and capital flows, is returning to the cryptocurrency ecosystem. As stablecoins grow, funds are flowing more freely into altcoins, DeFi, and other digital assets. This upward trend is driving a boom across the entire market. And this process has only just begun. A Shift in Behavioral Patterns: Accumulation, Not Speculation Every cycle has its behavioral characteristics. In the late stages, greed reigns supreme: high leverage, short-term trading, and rapid turnover. In the early stages, the opposite occurs—holders quietly increase their holdings, and volatility gradually subsides. This is what we are seeing now. Glassnode's Accumulation Trend Score (which tracks whether different wallet groups are net buyers or sellers) recently climbed above 0.5 for the first time in months. Retail wallets are accumulating again, medium-sized holders are rebuilding their positions, and whales are largely holding steady. This prevalent accumulation pattern reflects the early stages of previous bull markets, when investor confidence grows but public attention has not yet peaked. The macro backdrop: Tailwinds Return The macro environment is another key dimension. Interest rate cuts are back on the agenda. Central banks are signaling that tightening policies have reached their limit. Fiscal spending remains high, and government debt continues to expand—putting further pressure on the long-term value of fiat currencies. In such an environment, investors naturally seek scarce, non-sovereign assets: gold, stocks, and now, increasingly, Bitcoin. Cryptocurrency is no longer a speculative "alternative" asset. It is becoming a core macro hedge—a highly liquid, borderless, 24/7 asset that offers protection against currency devaluation. Institutional allocators have recognized this, and their behavior is evidenced by ETF flows and portfolio inclusion.

Combined with tightening on-chain supply, this creates a perfect storm for a structural upside.

What Could Invalidate the Bull Thesis

No thesis is complete without considering factors that could falsify it.

Here are the key signals to watch:

1. Rising Exchange Reserve Balances: If exchange reserves continue to rise steadily over several weeks, it could mean that holders are preparing to sell.

2. Declining ETF Inflows: If institutional demand cools and long-term holders begin to sell, this could signal a mid-cycle correction.

3. Extreme MVRV Readings: If valuation metrics begin to show extremely bullish levels similar to those seen in 2021, it could indicate an overheated market. So far, none of these conditions exist. How to Read This Phase: Think of the current market as a long, steep staircase—not a vertical elevator. Every rally is followed by pauses, corrections, and brief panics. But the underlying fundamentals—institutional inflows, shrinking supply, and growing confidence—are more solid than in any previous cycle. Bitcoin may have stabilized at $120,000, but on-chain data shows a structure more reminiscent of mid-2020 than late 2021. We are only just entering the accumulation and expansion phase. The final distribution phase—where the enthusiasm begins to spread—still lies ahead. In other words: the crowd sees the "top," while the chain shows the "beginning."

   Summary

   Price attracts attention, but on-chain activity reveals the truth.

   Bitcoin's fundamentals—measurable, transparent, and immutable—suggest that the market is still in the early stages of a structural uptrend. Institutional investors are steadily buying, exchange reserves are dwindling, and long-term holders are remaining on the sidelines.

   Combined with a favorable macro backdrop, expanding stablecoin liquidity, and broad fundamental accumulation, there's only one conclusion: this bull market has years, not months, of upward momentum.

   Every dip during this phase isn't a warning, but an opportunity to position the market to rebuild from the ground up.

   This isn't the end, it's the beginning.