Bitcoin has recently managed to climb above the alleged “make-or-break” level at $40,000 and hit a two-month high at over $46,000. Since then, the leading cryptocurrency has been consolidating in a narrow range, arguably undergoing a correction.
Historically, Bitcoin experiences sharp corrections following a sudden surge in a bear market — as previously seen in 2018. However, new data suggests that Bitcoin might not undergo such a sharp correction this time as long-term HODLers are reluctant to sell their coins.
Why Bitcoin is Not Repeating 2018’s Cycle
Bitcoin was trading below $30,000 on July 20. However, the asset has since managed to tap the $45,000 price levels, gaining more than 50% in less than a month. Despite this sudden surge, data by Glassnode reveals that Bitcoin holders are not selling BTC.
The leading blockchain analysis firm, Glassnode, confirmed in a tweet that BTC held in a wallet for more than one year are not being spent. Instead, the current selling pressure comes from BTC aged between 3 to 6 months — which represents short-term investors.
In comparison, this is quite the opposite of what happened during the 2018 bear market. At that time, old hands were consistently taking exit liquidity following spikes in prices, formulating sharp corrections.
Arguably, in 2017, the initial coin offering (ICO) mania that resulted in billions of losses led to people losing faith in the larger crypto market as a whole. Studies conducted later discovered that more than 80% of 2017 ICOs “were identified as scams.”
In contrast, the flood of government and central bank spending in the form of stimulus packages has raised concerns regarding continued inflation. This, aligned with other solid macroeconomic trends, pushed individual and institutional investors towards Bitcoin, which resulted in the 2021 rally.
Considering inflation is not as transitory as initially painted by officials, investors have strong incentives to further invest in Bitcoin. In addition, some market analyzers expect consumer prices to rise another 0.5% in July after it had raised by 5.4% YOY in June — yet another reason why it would be a bad decision to cash out Bitcoin.
Bitcoin Sentiment is Strong
During mid-July, an average of 2,000 Bitcoin per day—or 60,000 Bitcoin per month—were leaving centralized crypto exchanges. However, by August, this rate had increased by over 60% as 100,000 Bitcoin per month were leaving exchanges.
During that time, Bitcoin’s circulating supply on exchanges reached its 2021 low of 13.2%. Meanwhile, Willy Woo, a leading on-chain analyst, has said that Bitcoin can soon face a supply squeeze — a situation when the amount of Bitcoin available on centralized exchanges is less than the spot market demand. He stated:
“I’ve not seen a supply shock opportunity like this since Q4 2020 when BTC was priced at $10k only to be repriced at $60k in the months thereafter. Our supply shock is still in play with higher prices expected.”
Woo had previously asserted in his newsletter that Bitcoin would be fast in reaching $50,000 as its next target. He said:
“My expectation is similar to BTC at $20k all-time-high in January, where the price is pinned close to the $40k-$42k ceiling over a period of days (2 weeks maximum) wearing down sellers, followed by a faster move to $50k. The next major consolidation band is $50k-$65k.”
In addition, the number of fresh investors dabbling into Bitcoin is also rapidly growing. Lex Moskovski, chief investment officer at Moskovski Capital, shared a chart that displayed impressive surges in new entities entering the Bitcoin network.
Considering the positive sentiment around Bitcoin, how long do you think it would take for Bitcoin to reclaim all its lost territories, i.e. reach $65,000. Let us know in the comments below.
About the author
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.
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As Bitcoin Breaks $45k, Multiple Indicators Suggest a Continued Bull Run - The Tokenist
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