JdB36 - EN : Market is heating up
Fresh off the $50K mark, the Bitcoin market looks set to take off again, as the conditions for a supply shock are being put in place.
After bouncing off the EMA 21, forming a local low of $46,468, the price of Bitcoin has broken out of its consolidation and is testing new highs, closing the week around $51,921.
This week, we will look at a wide range of data to get an overview of the current market structure.
While Bitcoin's price is slowly getting closer its ATH, its realized capitalization has resumed a strong rise since late July.
The aSOPR now in a reasonable positive zone confirms the observation made last week : the market is absorbing without flinching the selling pressure caused by the liquidation of some tokens.
It also appears that the cohort of miners actively participated in this selling pressure.
With the net position of miners indicating a return to neutrality, miners have clearly ceded some of their BTC to the market.
While these profits are being realised in the strength of the market, this transfer of tokens is taking place in the context of a plausible meteoric rise in the price of Bitcoin.
Despite the low on-chain activity, the scale of the transfer volume on the network has increased significantly.
This is an encouraging observation, because from a long-term perspective, Bitcoin seems to be attracting and allowing an increasing amount of capital to circulate.
The market cycle from 2020 to 2021 witnessed the arrival of many institutional players, which almost multiplied by 5 the volume of capital traded on-chain.
While the 2017 bull market saw 3 phases of inflow, it is plausible that the current market phase is just the first step of a similar cycle.
What if this is all still just a warm-up before the real show ?
As we've seen, Coinbase's reserves are shrinking at a steady pace. And this trend applies to all exchanges.
For the past several weeks, a greedy accumulation of tokens has been taking place, quickly draining exchanges of their BTC supply.
The fact is that the platforms have less BTC today than at the end of 2018!
Approximately 620K tokens, or 20% of their reserves, have found a home with participants, a large part of which are found to be HODLers: long-term investors with a strong bullish bias.
This behavior results in a decrease in the BTC liquidity. Stored in cold wallets, tokens are withdrawn from the market and mature while waiting to be sold at much higher prices.
This combines particularly well with a trend that started two weeks ago: the growing interest of institutional investors for the derivatives market.
Indeed, so much capital is flowing into perpetual contracts that the 15 billion peak reached in May does not seem so far away in terms of scale.
Looking at the funding of these futures contracts, it seems that a renewed confidence is pushing investors to adopt a bullish bias.
By taking moderately leveraged positions, these players are increasing demand and inducing buying pressure in the market.
All the conditions are here for a supply shock to occur in the medium term, as Willy Woo and TXMC have brilliantly described, and push the price of Bitcoin to new heights.
Technically, the price of BTC has just broken out of a consolidation that has been in place for over two weeks.
This recent breakout from the top of the $50K zone could allow the price to head strongly north or - probability not to be excluded - south.
William Clemente was already announcing a probable return of volatility last Tuesday via his observations of the Wick HTF indicator.
In short, this indicator is triggered when the Bollinger Bands (BB) contract and volatility is at its lowest.
The lower the volatility and the more stable the price, the greater the chance of an impulsive movement, both up or down.
We can observe that the BB moved strongly came closer during last week, while the price fluctuated less and less, triggering a signal on the Wick HTF.
And what has to happen happened ! The price, like a spring, has finally expanded and the current market environment has pushed it above $50K. Volatility is back on BTC, and this is just the beginning.
Indeed, Bitcoin's current volatility index (91%) is much lower than in mid-February (132%), when the price first crossed $50K.
Thus, strong impulses are expected on the BTC price in the coming weeks and could allow the market to invalidate a dead cat bounce scenario.
To Sum Up
This week, the price of BTC has managed to break above $50K, promoting a short-term bullish bias.
The market, in a general state of profit, has been able to absorb the recent selling pressure induced by miners, as more and more tokens leave their exchanges.
Meanwhile, institutional investors are showing optimism by investing the derivatives market with moderate long positions.
Finally, Bitcoin's volatility seems poised to offer the price a series of strong impulses which, in the current environment, are likely to be bullish. Thus, an impromptu pullback is not out of the cards.