- Bitcoin’s market dynamics show concerning divergence between market cap and realized cap, historically a bearish indicator
- Global M2 money supply has entered parabolic growth in 2025 while Bitcoin consolidates, creating an unusual divergence
- Bitcoin spot ETFs experiencing weak performance with most products facing selling pressure
- U.S.-China trade tensions, including China’s 34% retaliatory tariff, have damaged investor confidence across crypto markets
- Tether (USDT) exchange reserves have plateaued, suggesting stagnant rather than growing buying power
- CryptoQuant’s CEO has declared “bull cycle is over” based on realized cap metrics
- Current conditions mirror December 2021 patterns that preceded extended bearish phase
The Ominous Divergence: Market Cap vs. Realized Cap
The cryptocurrency landscape finds itself at a precarious crossroads, with Bitcoin’s market capitalization and realized capitalization exhibiting a troubling disconnect. Unlike traditional market cap calculations that simply multiply circulating supply by current price, realized cap offers deeper insight by measuring value based on when each coin last moved. This nuanced metric reveals actual capital flows into Bitcoin’s ecosystem rather than mere price fluctuations. Since November-December 2024, a worrying pattern has emerged – the 365-day moving average of delta growth between these metrics has turned negative, mirroring conditions last seen in December 2021 before Bitcoin’s prolonged downturn.
What makes this particularly concerning is the historical reliability of this indicator. When capital inflows fail to drive corresponding price appreciation, it typically signals exhaustion in buying momentum. The current negative delta growth suggests that despite apparent market stability, underlying fundamentals have weakened considerably. Veteran traders recognize this divergence as a classic sign of distribution phase, where smart money quietly exits positions while retail investors remain optimistic about short-term prospects. If history serves as guide, this bearish phase could persist for at least another six months, challenging the narrative of continued bullish momentum that many enthusiasts have embraced.
Global Liquidity Paradox: M2 Growth vs. Bitcoin Consolidation
In a fascinating economic contradiction, 2025 has witnessed parabolic growth in global M2 money supply – encompassing cash, checking deposits, and easily convertible near money from major economies including the United States, China, and the Eurozone. Traditionally, such explosive expansion in monetary liquidity correlates strongly with appreciation in alternative stores of value like Bitcoin. Yet Bitcoin has remained stubbornly range-bound despite this tsunami of new money entering the global financial system. This unusual divergence between monetary expansion and cryptocurrency performance defies historical patterns and suggests deeper structural issues within crypto markets.
The disconnect becomes even more puzzling when considering Bitcoin’s original value proposition as a hedge against fiat currency debasement. With central banks around the world continuing accommodative monetary policies, Bitcoin should theoretically benefit from capital seeking inflation protection. However, the current consolidation phase indicates that institutional and retail investors alike may be reassessing Bitcoin’s role in modern portfolios. Alternative explanations include capital flowing into traditional safe havens like gold or being deployed in emerging market opportunities rather than cryptocurrency markets. Whatever the cause, history suggests such divergences rarely persist long-term – either Bitcoin will eventually catch up to reflect the expanded money supply, or a more significant correction looms on the horizon.
ETF Flows: Institutional Sentiment Turns Cautious
The introduction of spot Bitcoin ETFs was heralded as a watershed moment for cryptocurrency adoption, promising to unlock waves of institutional capital. Recent data paints a more sobering picture. While Blackrock’s IBIT (iShares Bitcoin Trust ETF) has managed to attract modest inflows over the past fortnight, the broader ETF landscape reveals mounting selling pressure across most products. This shift in institutional behavior reflects growing caution amid deteriorating macroeconomic conditions, particularly as trade tensions between global superpowers intensify. The 34% retaliatory tariff imposed by China on April 2nd has only exacerbated market uncertainty, spilling over into cryptocurrency sentiment.
Institutional capital tends to move with deliberate caution, making the recent outflows particularly significant as a barometer of sophisticated investor sentiment. These entities possess extensive research capabilities and often access to information channels unavailable to retail traders. Their retreat from Bitcoin exposure suggests internal models may be forecasting additional downside risk in the near term. Furthermore, the pattern of outflows appears methodical rather than panic-driven, indicating strategic repositioning rather than emotional selling. This measured withdrawal of institutional support removes a critical price floor that had previously absorbed selling pressure, potentially leaving the market vulnerable to accelerated declines should retail confidence also begin to waver.
Stablecoin Dynamics: Tether’s Telling Plateau
Stablecoins function as the lifeblood of cryptocurrency markets, with Tether (USDT) serving as the primary on-ramp for global capital. The exchange reserve levels of USDT have historically provided valuable insight into market potential, with growing reserves typically preceding bullish phases as they represent dry powder ready for deployment. Alarmingly, recent months have witnessed a distinct flattening in Tether’s exchange reserve growth – a pattern eerily reminiscent of conditions observed during previous market cycle peaks. This stagnation suggests that fresh capital inflows have substantially diminished, limiting the fuel available for sustained price appreciation.
The implications extend beyond mere technical analysis. Stablecoin velocity and reserve growth reflect real-world adoption and interest in cryptocurrency markets. When new users and investors enter the ecosystem, stablecoin issuance typically accelerates to meet demand. Conversely, plateauing reserves indicate market saturation or waning interest from potential new participants. This metric becomes particularly concerning when viewed alongside weakening ETF flows and negative realized cap growth. Together, these indicators form a constellation of bearish signals that transcend any single data point. While previous cycle tops featured overheated metrics across multiple dimensions, the current environment presents a more nuanced picture – not yet exhibiting extreme froth but showing clear signs of deteriorating fundamentals beneath a relatively stable price surface.
Geopolitical Pressures: Trade Wars and Market Confidence
The escalating trade conflict between the United States and China has introduced significant headwinds for risk assets globally, with cryptocurrencies proving particularly vulnerable to these macroeconomic shocks. China’s implementation of a substantial 34% tariff on April 2nd marked a dramatic escalation in tensions, triggering ripple effects throughout financial markets. Historically, Bitcoin has demonstrated mixed correlations during periods of geopolitical uncertainty – sometimes functioning as a safe haven and other times moving in tandem with traditional risk assets. The current environment appears to favor the latter relationship, with Bitcoin sentiment deteriorating alongside broader market confidence.
These trade hostilities impact cryptocurrency markets through multiple channels. First, economic uncertainty typically reduces risk appetite among institutional investors, leading to reduced allocation toward volatile assets like Bitcoin. Second, trade restrictions can complicate cross-border capital flows, potentially limiting access to cryptocurrency markets for certain participants. Finally, the prospect of prolonged economic conflict between the world’s largest economies threatens global growth forecasts, dampening enthusiasm for speculative investments broadly. While some crypto proponents argue that international tensions should highlight Bitcoin’s borderless nature as an advantage, market behavior suggests investors currently view it primarily through a risk asset lens rather than as digital gold. This perception could shift if trade conflicts escalate further, but present evidence indicates geopolitical tensions are currently a net negative for cryptocurrency valuations.
Conclusion: Navigating the Crosscurrents
The cryptocurrency market stands at a critical juncture, with multiple indicators suggesting a potential shift from bullish to bearish momentum. The negative trend between market cap and realized cap provides a historically reliable warning signal, while stagnant Tether reserves indicate diminishing buying power entering the ecosystem. These technical factors, combined with weakening ETF flows and macroeconomic headwinds from escalating trade tensions, create a challenging environment for sustained price appreciation. While the parabolic growth in global M2 money supply presents a counterargument for potential Bitcoin appreciation, this divergence cannot persist indefinitely.
Investors should approach the coming months with heightened caution, recognizing that current conditions share concerning similarities with previous cycle peaks despite lacking extreme overheated metrics. The declaration that the “bull cycle is over” may prove premature, but evidence increasingly supports a period of consolidation or correction rather than immediate continuation of upward momentum. As always in cryptocurrency markets, positioning should reflect individual risk tolerance and time horizons, with particular attention paid to changing correlations between Bitcoin and traditional financial markets during this period of geopolitical uncertainty. Whether Bitcoin ultimately catches up to reflect expanded global liquidity or succumbs to deteriorating technical fundamentals remains the central question for market participants navigating these crosscurrents.
Source:: Is the bull cycle over?