From Catalyst to Confirmation: Bitcoin's Transition into a New Bull Market

Chart of the Month

Return of the Debasement Trade: Correlation between bitcoin and gold increases to 6-year high

Performance

August 2026 proved to be a month of two distinct halves for cryptoassets: an extended period of consolidation, illiquidity and coiling volatility during the first three weeks, followed by a decisive resolution to the upside in the final week, which saw Bitcoin post its biggest weekly gain since the beginning of the last bull market in late 2022.

The month started on a weak footing. In the first week of August, Bitcoin and other major cryptoassets moved lower amid a significant rebound in traditional financial markets, especially AI-related equities: Bitcoin and Ethereum declined by around -3% and -4%, respectively, while the Nasdaq 100 advanced approximately +1%, marking a clear reversal of the performance leadership between cryptoassets and tech equities observed in prior weeks. Bitcoin's underperformance was amplified by the Coldcard hardware wallet hacks, which drained approximately 1,400 BTC, mostly from wallets of early Bitcoin adopters. Bitwise products were not affected by this incident. On the macro side, the FOMC left the Fed funds target rate unchanged, but a record number of dissents implied rising upward pressure on key interest rates within the committee, and long-term US Treasury yields continued to grind higher to new multi-decade highs. In fact, oil prices, the Japanese yen and the Chinese yuan were all signalling that US Treasury yields sat at a very critical threshold, a constellation we flagged as a potential catalyst for eventual Fed intervention and, by derivation, a major tailwind for Bitcoin.

The second week of the month was characterised by continued consolidation despite a significant improvement in underlying investment demand: US spot Bitcoin ETFs recorded approximately +$865 mn of net inflows, while US spot Ethereum ETFs attracted around +$244 mn. At the same time, the build-up in potential volatility continued rather than resolved, as Bitcoin's trading range remained exceptionally compressed across multiple time horizons and implied volatilities across all major tenors sat within their lowest historical percentiles. It is also worth highlighting the decisive failure of BIP-110 over that weekend, with miner signalling at merely ~2.5%, which provided another important real-world demonstration of Bitcoin's decentralised governance model. On the macro side, a considerably weaker-than-expected US employment report (-23k nonfarm payrolls vs consensus of around +80k) reduced the market-implied probability of a September rate hike to approximately 44%.

Mid-month, cryptoassets took a breather and decoupled negatively from traditional risk assets: while the S&P 500 marked a fresh all-time high above 7,800 points on the back of softer US inflation prints, Bitcoin retraced towards ~62.8k USD (-3.1% WoW) and Ethereum drifted lower around ~1,880 USD. The relative underperformance was mostly attributable to crypto-specific factors, namely renewed net outflows from crypto ETPs and the delay of the SEC's planned tokenization framework, rather than the macro backdrop, which had actually turned more favourable for risk assets. Meanwhile, sovereign bond markets remained a key macro tail risk, with US 30-year yields reaching a new 19-year high and Thursday's auction seeing the Treasury pay the highest borrowing costs in a quarter of a century. A key observation at that point was that Bitcoin's implied volatility remained near cycle lows: the BVIV index (Bitcoin Implied Volatility Index) stood at only 36.8, and historical analyses suggested that such extreme compression usually resolves via upside moves.

This is precisely what materialised in the final week of August. Bitcoin rallied from around ~62.9k USD to a high of ~78.3k USD, its biggest weekly gain since late 2022, driven by a confluence of factors: historic levels of seller exhaustion in both Bitcoin and Ethereum (the seller exhaustion constant reached its lowest levels since November 2018 and December 2015, respectively), a mean-reversion in volatility from multi-year lows amid thin trading volumes, and a major macro catalyst in the form of the US Treasury's announcement to at least double its bond buyback programme from $2 bn to $4 bn per month, which weakened the US Dollar and signalled a renewed willingness by the US administration to ease financial conditions. In our view, recent US policies suggest that a "policy put" is very much alive, which positively skews the macro outlook for cryptoassets. The move was further amplified by the highest short futures liquidations ever recorded (~$2.74 bn on 19 August alone) and a reacceleration in weekly net inflows into global crypto ETPs to the highest level since October 2025 (+$2.76 bn).

As a result, Bitcoin reclaimed several key on-chain and technical pricing levels in a very short period of time, namely the short-term holder (STH) cost basis, the 200-day moving average and the True Market Mean, for the first time since November 2025. Ethereum outperformed Bitcoin into month-end, and altcoin breadth widened materially as the rally broadened across the digital asset complex.

Cross Asset Performance (MtD)

Cross Asset Performance (YtD)

Macro Environment

The macro environment is currently characterised by a fatigue in semiconductors and related markets with strong implications for the global business cycle. It is important to note here that the semiconductor cycle is one of the key drivers of the global business cycle due to its interconnectedness with manufacturing supply chains.

Right now, the peak in the semiconductor index (SOX) as well as KOSPI is actually foretelling a significant slowdown in global semiconductor billings and also signals that the peak in semiconductor sales may be behind us.

We highlighted one of the key reasons for this slowdown in one of our previous Bitcoin Macro Investor reports as well, namely tightening monetary policy across the globe:

Global rate hikes signal a sharp reversal in global semiconductor sales

Key major central banks like the ECB and the Bank of Japan have started hiking rates while the Fed is expected to raise rates at least once in 2026 according to the latest Summary of Economic Projections (SEP) aka “dot plot”.

More specifically, the June SEP signalled that roughly half the committee sees at least one hike in 2026, and markets and analysts have translated that (plus the July dissents) into September being the likely candidate. The next FOMC meeting, on September 16, will also come with a fresh dot plot.

In this context, monetary policy has continued to tighten as both nominal and real yields have continued to make new multi-decade highs. This is bound to weigh on global growth expectations and remains a key risk factor for traditional assets.

The following chart is showing weak monetary policy expectations (PC2) while global growth expectations (PC1) across assets still remain benign. It is worth noting that monetary policy expectations usually lead global growth expectations as priced by financial markets.

Market Expectations: Growth Pricing vs Monetary Policy

We expect that a repricing of global growth expectations may further weigh on cyclical sectors like semiconductors.

Another key reason for rising bond yields and tightening monetary policy appears to be related to capital repatriations by major foreign US Treasury bond holders like Japan (biggest foreign holder of USTs) and the unwind of the infamous “Yen Carry Trade”. Japanese investors used to be a major source for global liquidity as they engaged in foreign investments due to small return expectations at home.

Due to the strong (relative) rise in domestic interest rates in Japan and a recovery in the Japanese stock market, the incentive for Japanese investors to invest abroad and provide liquidity to the rest of the world has significantly declined. For instance, 10-year JPY-hedged US Treasury bonds only yield 1.96% while domestic 10-year JGB bonds yield 2.90% according to Bloomberg data.

At the same time, there is increasing evidence that Chinese investors have continued to repatriate capital from foreign (bond) markets. While yields of major sovereign bond markets such as US Treasuries, UK Gilts, or Japanese JGBs have experienced new multi-year or even multi-decade highs, the Chinese domestic sovereign bond market has seen their yields declining to multi-year lows.

It is well known that China has been diversifying away from US Treasury bonds into gold for some time but it also appears to be the case that a larger amount of capital is being recycled into their domestic bond market.

It is also worth noting that the Chinese economy has been sputtering lately. New loans in aggregate social financing have turned negative for the second time in July after April this year and have seen the largest drop on record. Key metrics like Chinese oil imports have literally cratered due to the domestic weakness. The official NBS manufacturing PMI unexpectedly fell to 49.2 in July - the first contraction in factory activity since February.

We think this decline in Chinese activity is also one of the major forces behind the decline in global liquidity which has likely exacerbated capital repatriation from overseas markets.

Amongst other things, our thesis is that this capital repatriation is driving weakness in major sovereign bond markets as well as FX markets around the globe.

We have repeatedly noted in the past that the simultaneous rise in JGB yields amid a depreciation of the Yen is also evidence for capital outflows from Japan. The Japanese government has intervened in the Yen repeatedly to defend key levels, also by selling US Treasury bonds.

A key reason is that higher oil import bills – caused by the crisis in the Strait of Hormuz – have increased pressure on Japanese importers to liquidate Dollar assets to pay for these higher oil import costs. This is something we highlighted in one of our previous Bitcoin Macro Investor reports as well.

Foreign Treasury Demand Destruction Index vs US 10-Year Yield

In fact, Japan has been the biggest net seller of US Treasuries since the Strait of Hormuz crisis began in February 2026 according to the latest TIC data.

We think that this is one of the key reasons why the US Treasury department recently joined the Japanese Ministry of Finance to conduct the biggest joint FX intervention in 15 years.

We think the incentive for the US government is quite clear: Stem the decline in the Yen so that the Japanese government is not forced to liquidate more of their US Treasury holdings which leads to further increases in yields.

The most recent announcement by the US Treasury department to double the amount of long-dated Treasury bonds buybacks has to be viewed in this light as well.

What is more is that the recent announcement to use the cash available in the Treasury General Account (TGA) at the Fed to buyback bonds implies that the Fed's net liquidity measure may approach its previous all-time highs of around 4 trillion as reached in mid-2021. The reason is that declines in TGA inject liquidity into the banking system and are therefore stimulative.

Bitcoin vs Fed Net Liquidity

This latest market intervention is a part of a logical chain of events to stem the rise in US Treasury bond yields and is signalling an increasing frequency by the administration to ease interest rates and, ultimately, financial conditions.

Where does this leave Bitcoin?

One of our long-held views at Bitwise is that bitcoin has been the “canary in the macro coal mine” that anticipates changes in financial conditions both to the downside and upside.

We still believe that bitcoin has priced in tightening in financial conditions and, therefore, also the coming deterioration in global growth expectations in advance which is why the downside risks amid the repricing in global growth expectations remain fairly limited.

However, we cannot discount bitcoin's high volatility and that significant downside cannot be excluded.

We have repeatedly highlighted in previous BMI reports that bitcoin was trading at a “macro discount” to global growth expectations based on a quantitative model.

Bitcoin vs Monetary Policy Expectations

To the contrary, due to Bitcoin's elevated inverse relationship with the Dollar, a weakening of the Dollar amid further easing of US fiscal and monetary policy may likely provide a key tailwind for bitcoin over the coming months (and years).

It is important to note that bitcoin's correlation with the Dollar remains significantly negative while the correlation against gold has increased to a 6-year high. Meanwhile, the correlation to the Nasdaq 100 has declined to a 1-year low (Chart-of-the-Month).

Return of the Debasement Trade: Correlation between bitcoin and gold increases to 6-year high

It is worth noting that the correlation between bitcoin and gold has increased to the 100% percentile (!). The implication is that investors have been buying both bitcoin and gold following the latest announcements by the US Treasury.

For us, this is a clear signal that the so-called “debasement trade” is experiencing a revival.

Note the inverse relationship between bitcoin and the Dollar Index (DXY) as well which suggests that both gold and bitcoin are increasingly regarded as “anti-Dollar” investment vehicles.

BTC Correlation Summary (90d Rolling)

As far as the Fed is concerned, we think that it is increasingly difficult for the Fed to remain credibly hawkish amid a rise in fiscal deficits and debt servicing costs.

The fiscal debt has just reached a record $40 trillion while gross interest expenses have increased to the highest level since 1998 with 3.8% of GDP.

Therefore, we believe that fiscal sustainability is becoming like the 3rd shadow mandate of the Fed with increasing constraints on conducting a hawkish monetary policy.

In other words, the US economy is increasingly moving towards fiscal dominance where monetary policy becomes increasingly ineffective or non-credible amid high fiscal deficits.

That essentially implies that key interest rates are bound to be lower than is warranted by the prevailing level of inflation and employment.

We think larger deviations from the warranted level of interest rates will ultimately weigh on the Dollar exchange rate, especially if real yields (i.e. nominal yields minus expected inflation) start to reverse lower. This is also a sign of (too) easy monetary policy.

We have published a deeper analysis of Bitcoin's relationship with the Dollar in one of our previous Bitcoin Macro Investor reports earlier this year but it's worth reiterating the key stylised facts from this report:

• There is generally an inverse relationship between the Dollar and Bitcoin but that is empirically weak
• However, bitcoin tends to react most to changes in the Dollar, when the Dollar is most volatile – both to the upside and downside.
• Empirically speaking, bitcoin has shown its best performances during the weakest Dollar depreciations and bitcoin has shown its worst performances during the strongest Dollar appreciations → “The Bitcoin-Dollar Smirk”
• Bitcoin is the “fastest horse in the monetary debasement race” historically exhibiting the highest inverse sensitivity to changes in the Dollar than any other debasement hedge like US large cap equities or gold.

Dollar weakness historically provides a significant tailwind for Bitcoin

Bitcoin exhibits one of the highest inverse sensitivities to the Dollar

It is also worth reiterating that trends in the Dollar (DXY) itself can be best explained via changes in relative capital flows – i.e. yield differentials and relative stock market performances.

In this context, we think the US equity market could be “the last bastion” to keep the Dollar from entering a prolonged structural bear market. The reason is that the relative performance of the US equity market (MSCI USA) against the rest of the world (MSCI World ex US) tends to explain the large trends in the Dollar Index (DXY).

Especially if we saw a prolonged consolidation in US Tech and the “AI Trade”, we think that the ensuing capital outflows from the US equity market could drive a significant Dollar weakness.

A structural underperformance of US equities could entail a Dollar downtrend

Historically speaking, the Dollar saw a similar decline after the Dot-com-bubble peaked in the early 2000s. What followed was a period of structural underperformance of US equity market vis-à-vis the rest of the world and, more importantly, a commodity supercycle that essentially lasted until the Subprime crisis in 2008.

It is worth pointing out that Bitcoin has never experienced neither a structural Dollar downtrend nor a structural commodity uptrend since its genesis in 2009. Therefore, we think such a scenario could challenge the diminishing returns hypothesis of Bitcoin over the coming years as these types of environments usually provide a significant tailwind for hard assets.

On-Chain Developments

A Return to Risk On

This month, the digital asset market repriced sharply higher. While the direction of travel was uncertain, across multiple editions of our recent Crypto Market Compass and Bitcoin Macro Investor reports we consistently highlighted the risk of a release in coiled volatility. With that expansion now having resolved to the upside, our focus shifts towards determining whether the market has transitioned from a risk-off regime into one of risk-on.

This raises a more fundamental question. What does a risk-on regime actually look like? Mechanically, it is a behavioural state across the investor base. It is characterised by portfolios moving from loss into profit, existing investors becoming more willing to add exposure, new participants entering the market in pursuit of momentum, and fresh capital beginning to flow into the asset class.

In this sense, risk-on reflects the return of collective animal spirits. On-chain data is particularly powerful because it allows us to look beneath headline price action and directly assess the capital flows, positioning and spending behaviour of market participants. This gives us a framework for determining whether the defining characteristics of a genuine risk-on environment are now beginning to emerge.

The first way we can assess balance-sheet improvement is through the percentage of supply held in profit. Notably, this measure has now moved back above its -1σ. Historically, decisive transitions through this threshold have indicated that investors are beginning to emerge from periods of severe portfolio stress.

However, false breakouts can occur, with the initial rally towards $83k this cycle providing one example. It is therefore important to monitor whether the improvement can be sustained and develop into a more durable shift in investor conditions.

Bitcoin: Percent Supply in Profit

When assessing the seven-day change in the percentage of supply held in profit, we can gauge the intensity of the recovery in investor balance sheets. The latest move of +20% represents the 18th largest increase on record, with only 0.3% of trading days recording a stronger improvement. This highlights the magnitude of the shift in investor conditions and provides a notable signal of how sharply market sentiment has changed following roughly 10 months of bear-market price action.

Bitcoin: 7D Change in % Supply in Profit

Notably, among Short-Term Holders, who represent newer demand entering the market, the percentage of supply held in profit has not only moved above its historical mean but has also reached its highest level since the October 2025 bear market began. This marks a significant improvement in conditions for investors who entered during the past five months.

Typically, such shifts have acted as an early signal of improving sentiment, while the speed and magnitude of the current move point to a meaningful change in market structure. Additionally, the developing pattern of higher highs across these profitability measures reinforces the improvement in investor conditions.

Bitcoin: STH Percent Supply n Profit

Moving on, we can assess the dollar value of profits held across the investor base. Over the past seven days, this has increased from approximately $187bn to $462bn, representing the 5th largest dollar improvement on record.

In percentage terms, unrealised profits have climbed by around 147%, also ranks at the 20th largest increases observed. Together, these measures highlight a substantial improvement in investor balance sheets on both an absolute and relative basis.

Bitcoin: Value Invested in Profit

Finally, we can observe a transition back into a profit-dominant regime, suggesting market participants have responded with a meaningful increase in profit-taking.

This is important as risk-on environments are supported by new liquidity entering from marginal buyers. When sustained, the shift into a profit-dominant regime has historically coincided with the macro transition into risk-on conditions following previous bear markets.

Bitcoin: Net Realised Profit / Loss (7-Day SMA)

Confirming the Change:

The most straightforward way to confirm a transition from risk-off to risk-on conditions is through key pricing levels. Over the past year, we have consistently highlighted three important thresholds spanning both on-chain and technical frameworks:

• The True Market Mean at $76.2k estimates the average acquisition price of active investors by excluding supply considered lost or dormant, including early miner and Satoshi-era coins.
• The Short-Term Holder cost basis (STH-CB) at $70.2k represents the average acquisition price of newer market entrants and has historically acted as a delineator between local bull and bear regimes.
• The 200-day moving average at $69.1k, a widely referenced momentum indicator that has historically helped distinguish broader periods of trend expansion and contraction.

Notably, Bitcoin has now decisively reclaimed all three levels for the first time since October 2025. Historically, sustained breaks above these thresholds have reflected improving portfolio conditions across both newer and broader market participants, alongside a recovery in medium-term momentum.

The reclaim of the 200-day moving average is also notable given its widespread use across systematic and trend-following strategies. Taken together, these developments point towards a meaningful shift in investor positioning and market behaviour.

Bitcoin: On-Chain Momentum Levels

We can further assess the transition using the mean and median prices observed between consecutive cycle highs. Usually, these statistical midpoints have provided useful measures of market equilibrium and currently align closely with the True Market Mean.

• Cycle Mean Price: $79.2k
• Cycle Median Price: $75.8k

Bitcoin's decisive move above the cycle median provides further evidence that the market is transitioning away from the deeply risk-off conditions that characterised the drawdown, while price is now attempting to reclaim the cycle mean.

Bitcoin: Mean & Median Price Between Cycle Peaks

From a purely technical perspective, the $83k region remains the final major hurdle which also coincides with the average ETF inflow cost-basis. A decisive break above this level would establish a new higher high and confirm a reversal of the prevailing downtrend. Until then, Bitcoin technically remains within the broader lower-high structure despite the substantial improvement across other measures.

Bitcoin: On-Chain Momentum Levels

Historical Analogues

Bitcoin bear markets are ultimately a process of supply redistribution. Coins migrate from holders with a low tolerance for volatility and drawdown towards investors with stronger conviction and longer time horizons. As this transfer matures, liquid sell-side supply contracts, marginal selling pressure fades, and volatility typically compresses. This creates the conditions for an asymmetric repricing which we have just experienced.

At the end of a bear market, the investors who remain are typically the most tenured, conviction-driven and value-oriented participants.

We can assess this dynamic by comparing the proportion of profit-bearing and loss-bearing supply held by Long-Term Holders, defined as investors who have held their coins for more than 155 days. This cohort is statistically less sensitive to short-term price movements, making it a useful proxy for the committed investor base that remains once market tourists have largely exited.

Historically, when the Long-Term Holder share of loss-bearing supply exceeds its share of profit-bearing supply, it has been associated with a transition towards a new market cycle. This crossover has now occurred for the first time this cycle, suggesting that a transition towards a risk-on regime has begun.

Bitcoin: LTH Share of Supply in Profit & Loss

Once sell-side pressure is sufficiently exhausted and the remaining investor base becomes increasingly price-insensitive, even a modest increase in demand can force price materially higher. In an increasingly illiquid market, this repricing can rapidly push a dense concentration of bear-market supply back into profit.

To capture this transition, we introduce the Risk-On Transition Model, combining two variables expressed as full-sample historical percentile ranks:

• The 7-day change in 7-day realised volatility
• The 7-day change in Percent Supply in Profit

We define a Risk-On Transition signal as an observation where the 7-day change in realised volatility is at or above its 80th historical percentile, while the 7-day change in Percent Supply in Profit is simultaneously at or above its 90th historical percentile.

To focus specifically on bear-market transitions, a qualifying observation must also occur while Bitcoin is trading above the Short-Term Holder Cost Basis but below the True Market Mean. This isolates periods where local market structure has recovered and newer market participants have, on average, returned to profit, while the broader macro regime remains unconfirmed.

BTC Risk-On Transition Model

The August 20th observation pushes the model firmly into the breakout region, reaching approximately the 88th percentile for volatility acceleration and the 99th percentile for the increase in supply held in profit. This combination is consistent with a market rapidly repricing a dense concentration of supply accumulated at lower cost bases during the bear market.

Bitcoin: Risk-On Transition

The recent decisive break above the True Market Mean provides the higher-order confirmation. This indicates that the repricing has progressed beyond a local recovery and into a broader macro risk-on regime. If this level is held, this suggests the current market structure has progressed through the full framework:

Supply redistribution → sell-side exhaustion → volatility compression → local recovery above STH-CB → Risk-On Transition signal → TMM reclaim

Bottom Line

Appendix

Cryptoasset Market Overview

Global Cryptoasset Market Caps

Bitcoin Performance

Ethereum Performance

Ethereum vs Bitcoin Relative Performance

Altseason Index

Bitcoin vs Crypto Dispersion Index

Cryptoassets & Macroeconomy

Macro Factor Pricing

How much of Bitcoin's performance can be explained by macro factors?

Cryptoassets & Multiasset Portfolios

Multiasset Performance with Bitcoin (BTC)

Rolling correlation: S&P 500

Rolling correlation: Bund Future

Rolling correlation: Gold

Rolling correlation: Dollar Index (DXY)

Cross Asset Correlation Matrix

Cryptoasset Valuations

Bitcoin: Composite Valuation Indicator

Bitcoin: Valuation Metrics

On-Chain Fundamentals

Bitcoin: Closing Price

Bitcoin's supply scarcity is more pronounsed that during the last cycle

Bitcoin Long-term Holder (LTH) Dashboard

Bitcoin Short-term Holder (STH) Dashboard

Bitcoin: Price vs Average Accumulatio Score

Bitcoin Accumulation Score

Bitcoin: Steady increase in scarcity will provide a tailwind for price appreciations

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