Bitcoin
Bitcoin On-Chain Data Flashes “Dumping Risks” as Price Holds $22K
Certain on-chain metrics on the Bitcoin chart are flashing “dumping risks,” according to data fetched by Kim-Young Ju of CryptoQuant.
The chief executive warned about an indicator known as “All Exchange Inflow Mean (144-block MA)” recently venturing into an area that typically precedes a bearish price move. In retrospect, the metric reflects the average of bitcoin deposits across the global cryptocurrency trading platforms.
“When this indicator hits 2 BTC, it is likely to be sideways or bearish,” tweeted Mr. Ju on Tuesday. “It always has been sideways since November.”
Bitcoin inflow into exchanges on 144-block MA. Source: CryptoQuant
Ready to Buy Again
The analyst also raised speculation that traders will sell-off their profitable Bitcoin holdings to repurchase them later at lower prices. He envisioned the said possibility using two indicators: the total amount of Bitcoin and stablecoin reserves on all exchanges.
As of Tuesday, the BTC exchange reserves were falling, while the stablecoin balances were rising. That showed that traders are not withdrawing their profits off the exchanges, which means they are ready to spend their stablecoins as soon as the Bitcoin price hits their favorite support targets.
Bitcoin and stablecoin reserves on all exchanges. Source: CryptoQuant
Mr. Ju also said that the Bitcoin marker’s strong buying power might offset the bearish pressure incurred by whales.
“I punt long with low leverage,” he noted.
Bitcoin R/R Ratio
Bitcoin recorded a stellar session last week as its price ruptured through the $20,000-resistance level and went on to log its record high of $24,300 this Sunday. Nevertheless, the rally also pushed the cryptocurrency’s momentum readings into overbought regions, a move that typically follows a downside correction.
The new weeks started under the expected bearish bias. Traders sold-off their profitable holdings at the local price top, causing BTC/USD to move lower. The sentiment also ballooned as the US dollar regained strength after hitting its two-year low, giving Bitcoin plenty of room to keep moving lower.
Bitcoin targets 20-EMA as price corrects from $23,400-top. Source: BTCUSD on TradingView.com
But many analysts agree that a 30-40 percent correction is normal after an asset rally by more than 150 percent in just three months. For instance, Liesl Eichholz, an analyst at Glassnode — an on-chain data analysis firm, stated that Bitcoin’s risk/reward ratio remains attractive for investors even as the cryptocurrency trades near its record high.
“Reserve Risk is used to assess the confidence of long-term holders relative to the price of BTC; when confidence is high and price is low, Reserve Risk remains low, and there is an attractive risk/reward to invest,” she wrote.
The monthly relative strength index (RSI) of Bitcoin (BTC) shows the dominant cryptocurrency is primed for another rally.
Is 2021 an ideal time for a Bitcoin rally?
The RSI is a momentum indicator that measures whether an asset is overbought or oversold. When the RSI surpasses 75, it signals the asset is overbought, and when it drops below 30, it means the asset is oversold.
A pseudonymous trader known as “Crypto Capo” noted that the monthly RSI of Bitcoin is set to close above 80. Historically, when this has happened, BTC has saw a strong rally afterward.
Although the monthly RSI of Bitcoin is above 80, which is technically oversold, BTC’s RSI tends to become oversold for prolonged periods during a bull cycle.
Hence, traders often refer to an oversold RSI on a high time frame chart, like the monthly candle chart, to forecast an extended rally in the short term to medium term. The trader said:
“Monthly candle is about to close above 80. When this happens, bullish trend continues, with an avg. return of 1010.87%. Each cycle is shorter.”
However, the trader emphasized that one indicator cannot accurately predict the price cycle of Bitcoin. Crypto Capo explained that the combination of a few indicators could serve as guidance for the future. He wrote:
“You cannot base a prediction on an indicator. What we do is combining several methods to have a guideline for the future, to see what is more likely. But in the end, we adapt to what the price does in the present.”
“Bullish year ahead”
Traders have differing perspectives on where Bitcoin is headed in 2021, but most traders remain overwhelmingly bullish.
Cointelegraph Markets analyst Michael van de Poppe said he anticipates Bitcoin to reach $65,000 to $85,000 by next year’s end. He stated:
“I’ve got to revise my view on the potential level of $BTC at the end of 2021. Through this recent surge, I’m expecting it to be between $65,000-85,000 at the end of 2021. Bullish year ahead.”
Meanwhile, the options market is pricing in a 22% chance of Bitcoin achieving $120,000 by next year, which could also serve as a potential guideline on where BTC is heading in 2021.
In the short-term, however, some traders are cautious in entering leveraged positions. A pseudonymous trader known as “TheBoot” said the ideal scenario is to wait for Bitcoin to consolidate at $25,000 or enter after the next price upsurge. The trader explained:
“No rush to enter leveraged trades on $btc right here imo. Best would be to wait and long low 25k or even mid 24k. Alternatively, wait for the next leg up and then a dip from there.”
Cointelegraph previously reported that whales have been buying Bitcoin more aggressively since Christmas, which could buoy the mid-term bull case for BTC entering into 2021.
Bitcoin has had an explosive breakout year as a maturing financial asset,. The cryptocurrency is finally being considered by institutional investors for the first time, during a year that will go down in history for unprecedented money printing.
The asset’s hardcoded digital scarcity is a primary driver of its boom and bust cycles, and in the year following each block reward halving, magic happens. With the new year right around the corner, here’s a look back at past crypto market cycles for a glimpse at what to expect from Bitcoin in 2021.
Looking Back At Historical Bitcoin Market Cycles
All markets are cyclical and go through distinct phases of bear and bull trends. These cycles can take place over the course of decades, or a handful of years. In crypto, cycles often move faster than traditional assets due to the always-on, 24/7 market.
But because Bitcoin is just over a decade old, there are only a couple of boom and bust cycles at which to glean any useable data. In technical terms, when Bitcoin breaks its former all-time high, the new bull market is on.
Fundamentally, this occurs every four years following the asset’s block reward halving. This built-in mechanism slashes the supply of BTC in half at a time when demand is beginning to resume.
RELATED READING | NY TIMES BESTSELLING AUTHOR: BITCOIN S2F IS FLAWED, NOT MATHEMATICALLY SOUND
The combined effect of suddenly diminished supply and growing demand throws buying and selling equilibrium so out of balance that price appreciates exponentially.
2020 has acted as the ideal example of the impact each halving can have on the market. Bitcoin went from “a fad” to full-blown FOMO in less than nine months, all because supply and demand is so favorable to positive ROI.
And while 2020 was definitely a breakout year for a bullish Bitcoin, it is next year that will make a new wave of Bitcoin billionaires.
Halving years are marked in blue. In the year following, the cryptocurrency goes full parabolic | Source: BLX on TradingView.com
Move Over 2020, Why 2021 Will Be The Cryptocurrency’s Best Year Yet
Glancing at the chart above and it’s shocking to see just how high Bitcoin has climbed in twelve years. During the twelve years of trading, the cryptocurrency has had three distinct halvings, cutting the reward miners receive from 50 to 25 BTC, then from 25 to 12.5 BTC, to the current 6.25 BTC.
Each time this happens, demand begins to so drastically outweigh the limited supply, the asset goes parabolic and rises exponentially.
RELATED READING | BITCOIN BULL RUN IS OFFICIAL ACCORDING TO MONTHLY RSI, MORE BULLISH THAN 2017
In the two post-halving years on record, the first resulted in well over 6,000% ROI and the second just under 2,000% ROI. What could 2021 bring crypto investors?
Another 2,000-6,000% return isn’t likely simply due to the law of diminishing returns, however, even a 400% increase from current levels would result in a price of $125,000 per BTC.
Featured image from Deposit Photos, Charts from TradingView.com
A downside correction in the Bitcoin market at the beginning of this week may prepare a fresh run-up towards $30,000, says Teddy Cleps.
The independent market analyst tweeted a technically bullish set up on Monday, projecting the Bitcoin price in a trend continuation pattern. In the chart, traders can observe the cryptocurrency consolidating inside a Triangle-like structure following its parabolic upside move above $28,000 on Sunday.
Bitcoin bull run setup, as presented by Teddy Cleps. Source: BTCUSD on TradingView.com
It appears like a potential Bullish Pennant, which could technically send the Bitcoin price higher by as much as the rally that preceded its formation — aka “flagpole.” It is around $3,652 long, as measured by Bitcoinist. Therefore, the bitcoin price has a great potential of hitting $30,000 should it break the Pennant to the upside from its apex.
“The rejection from $28,000 was just telling us where the next triangle started,” said Mr. Cleps. “Let it consolidate, let it reach an apex, let it break out, and then show us the way to $30,000.”
Fundamentals
The bullish analogy surfaced as Bitcoin achieves one record high after another. The cryptocurrency reached a new one of $28,387 on Sunday as traditional markets remained close for the Christmas holiday. Meanwhile, the aggregated open interest of Bitcoin Futures hit another record level of $8.9 billion, further reflecting the market’s enthusiasm.
Bitcoin Futures aggregated open interest across all exchanges. Source: Skew
Robbie Liu, a researcher at OKEx cryptocurrency exchange, noted that Bitcoin expects to sustain its profits on booming institutional adoption. Typically, the leading crypto corrects lower after a rally as traders’ focus shifts on its rivals, causing a so-called “altcoin rally,” which is no longer the case.
Mr. Liu referred to Donald Trump’s decision to sign a bill that would pave the way for a $900 billion stimulus package to reach millions of Americans. Coupled with the Federal Reserve’s dovish policies, it would increase further downside pressure on the US dollar. The greenback is already down by more than 12 percent YTD.
“The three major U.S. stock indexes rose for the second day in a row before the Christmas holiday,” said Mr. Liu. “Meanwhile, stock index futures saw gains today after President Trump signed a new $900 billion stimulus package, and we can expect some of that sentiment to boost Bitcoin.”
Warnings for Bitcoin Bulls
As the bullish euphoria sustains, some analysts have also suggested traders prepare for a short-term downside correction — that could invalidate the Bullish Pennant setup above.
Mark Principato, the executive director at Green Bridge Investing, stated that Bitcoin’s current upside moves “are a sign of speculative froth and the herd mentality.” The analyst stated that the cryptocurrency could still fall towards $23,000, where traders can consider opening a long position.
“Please understand, when the market looks its best, that is often the WORST time to enter,” he explained. “Avoid the hype and all of the “logic” and reasoning as to WHY this move is taking place. It will not enforce good habits in the long run.”
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