🌊 The Bitcoin Tide is Turning

Bitcoin market conditions change amid whale buying, short squeeze, and bullish news developments

Quick take;

  • Bitcoin market conditions are changing as whales purchase below $30k and a huge short squeeze follows

  • Positive news is beginning to have a greater impact on upside price movements, indicating that Bitcoin is entering more bullish market conditions

  • There is still significant hurdles to be overcome if Bitcoin is to reclaim record highs but the odds that a local bottom is in are significantly higher

Disclaimer: Nothing in this piece is financial advice. It is strictly educational information. Take responsibility for your own financial decisions.

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Since my last analysis piece, the odds that a local bottom is in have raised drastically. In the last market outlook, I gave roughly even odds for a bull case and bear case. If anything, I was more convinced of the bearish case given that BTC was trading close to its yearly open and a drop below that would have likely catalyzed a significant sell-off. 

At one point, it looked like the bearish case was unfolding and I got caught offside on a couple of leveraged short positions. I wasn’t the only one that was caught offside as roughly $757 million in short-side liquidations took place during the following rise. 

As it stands, my bias has changed to bullish. I will look to enter leveraged long positions on any low-volume pullbacks. I will reassess if we have a couple of significant dumps but as it stands, the odds of Bitcoin returning to the low-$50k range are much higher.

However, for Bitcoin to reclaim record highs, there are still a number of significant levels to be overcome. We will cover these levels. But first, let’s consider why the tide has been changing.


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Smart money buys below $30k and huge short squeeze follows

For those of you who regularly follow my analysis, you will know that I put significant emphasis on what the smart money is doing. Smart money generally consists of institutions, whales, and funds with sophisticated trading strategies. 

When it comes to smart money, Alameda Research is one of the biggest players in the game. After the drop below $30k, as my dumb money was scrambling to take short positions in anticipation of a dump, their smart money was buying up BTC.

Sam Trabucco, a quantitative trader at the firm, revealed that Alameda had begun accumulating at sub-$30. Some of the noted reasons for the accumulation was a speculated overextension to the downside due to the recent barrage of bearish news and overexposure of leveraged short-side position which would provide fuel for significant upside movements. As it turns out, Sam was spot on.

The subsequent rise was followed by a short squeeze whereby speculators who were leveraged short were liquidated, providing additional upside pressure. Over $1 billion in short-side liquidations have been catalyzed since Bitcoin formed its local low below $30k with each liquidation providing further fuel for the upside price trajectory. 

(Source: Bybt.com)

This indicates that the last leg down was predominantly driven by leveraged speculators in the derivatives. If it were driven by significant selling in the spot market, price would be more likely to maintain prices in the low-$30k range and below. However, the fact that such a significant amount of liquidations occurred as price recovered from this point suggests that such low prices are not Bitcoin’s natural territory.

The impact of news as a directional indicator 

Another indicator that Bitcoin market conditions have changed is the impact of news on the price of BTC. When conditions are bearish, bullish news tends to have little impact while bearish news can catalyze significant downside movements. The vice-versa is also true. When conditions are bullish, positive news can spur significant jumps while negative news has little impact.

It seems that we are entering the territory of the latter. Bullish news related mainly to Amazon has been accompanied by significant upside movements whereas negative news from US Congress has not even been registered by the price movements.

The significance of big-percentage price movements

The distribution of price movements has a nonlinear distribution. Small price movements will occur frequently and have low significance on directional bias while large movements occur infrequently and carry higher significance on directional bias. A daily movement of 10% is not ten times as significant as a 1% daily price movement. It’s hundreds or thousands of times more significant in terms of the information in yields in relation to future direction.

The recent price movements have been significant and yield greater information regarding the future outlook of BTC than the last month and a half of low-volume ranging. In terms of price movements, Bitcoin recorded it’s largest seven-day increase since the Tesla-driven jump of February and volume has been consistently higher.

(Source: Tradingview.com)

Levels

With that being said, there remain some significant hurdles to be overcome before Bitcoin can reclaim all-time highs. If Bitcoin can surpass the seller liquidity in place around $42k, there is high odds that it will be able to continue appreciating towards the low-$50k range. 

However, more selling pressure is anticipated around this point. If price can sustain prices above the low-$50k range, the odds of an all-time high recovery along with further increases rises considerably. At this point, I will be looking to go heavily long and ride it to the top and beyond. 

That’s just my take and the anticipated levels of seller liquidity are primarily based on rudimentary chart analysis. So reread the disclaimer and DYOR. To summarize, my short-term bias is bullish and I believe there is high odds that the local bottom is in. However, there is still significant hurdles to be overcome if Bitcoin is going to reclaim all-time highs and we may see some volatile trading around these hurdles. 

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Some other things

  • I recently jumped on the Compass Mining and Stephan Livera podcasts to discuss the state of Bitcoin mining in North America. If this is a topic that interests you, they are available here and here.

  • The US Congress is proposing a bill that could stifle the US cryptocurrency industry. The bill is being opposed by Compass Mining, the Texas Blockchain Council, and the Chamber of Digital Commerce. This will be an interesting development to monitor.

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Bitcoin Bull Versus Bear Case

Analyzing Bitcoin market conditions amid a lengthy period of consolidation

Quick take;

  • Bitcoin medium-term downtrend takes a hiatus as strong liquidity lies at both ends of current range

  • Arguments can be made for both a bullish case and bearish case in Bitcoin

  • On-chain analysis, strong buyer liquidity, and funding rates have shown some bullish signs

  • On the other hand, the trend is still downward and price has some significant hurdles to overcome if price is to resume its uptrend

Disclaimer: Nothing in this piece is financial advice. It is strictly educational information. Take responsibility for your own financial decisions.

We work with top-5 derivatives exchange ByBit as affiliate partners. Use our link and get up to $1,000 as a signing bonus.

Bitcoin continues to trade range bound and recent developments have forced me to reassess my previous anticipation that the Bitcoin market has more room to bleed. While this may be the case,  I have also come to realize that there are some strong arguments that Bitcoin has already formed its market low.

I am currently neutral in my outlook and hold no directional bias. Both bullish and bearish cases can be made for Bitcoin and I will detail these below. But one thing is for certain. Bitcoin must break the strong liquidity that lies at either end of its current range for greater volatility and volume to return. Many directional and arbitrage traders are currently sitting on the sidelines due to the lack of volatility, further reinforcing the range bound price action.

Before detailing the bullish and bearish arguments, I will reiterate that I am neutral in my outlook. I could see either of these scenarios unfolding and I will await a breakout before I start to take speculative positions. If anything, because price is currently trading closer to the lower end of the range, I allocate slightly higher odds to the bearish case.



The Bull Case

(Source: Tradingview.com)

On the lower-end of the current Bitcoin range lies the significant $30k level and the yearly open of $28,923 below it. Naturally, this has attracted significant buyer liquidity. Order book analysis based on data from Tradinglite shows that on the Binance BTCUSDT spot market (the biggest spot market), buy orders of almost 5,000 BTC lie between $28k and $29k alone. Another 5,000 BTC in buy orders lies between $29k and $32k with much thinner liquidity lying between the current price and $40k as illustrated below.

(Source: Tradinglite.com)

A similar scenario is viewed on the orderbook of perpetual futures markets. Here’s the FTX order book, a top-three derivatives exchange by daily trading volume. However, there is more liquidity concentrated close to price in this case which makes sense given the extremely speculative nature of the participants of these markets. However, you don’t need to analyze order books to realize that $28k to $32k is an area of significant interest for buyers. The quick reversal on the 22nd of June as Bitcoin dropped below $30k highlighted that significant buying pressure rested in this area.

(Source: Tradinglite.com)

A deeper analysis of the most recent dump below $30k suggests that it was driven by leveraged traders in the perpetual Bitcoin futures market. Around the time of the 22nd of June dump, the average funding rate in these markets sustained negative territory for over a week, indicating that traders in these markets played a significant role in the downside movements. Given the highly leveraged nature of these markets, price movements driven largely by speculative activity in these markets are more susceptible to a reversal. This was probably the biggest factor that made me reconsider my bearish outlook. If the Bitcoin price is currently approaching another test of $30k, I believe that the average funding rate during this test will be extremely revealing regarding future price prospects.

(Source: research.arcane.no)

One factor which may indicate that the medium-term downtrend is approaching its conclusion is the impact of news on recent price action. It appears that news is having a lesser impact on the Bitcoin market price movements which is characteristic of the latter end of a trend. Consider the Bitcoin price movements in early April and early May. Positive news developments were having little impact as price approached its reversal. Similarly, recent news developments which can be perceived as bearish, such as a significant drop in Bitcoin hashrate, are having a futile impact on price movements. I don’t have solid data for this argument. Any analysts/developers that are interested in doing a more quantitative analysis on the impact of the news on the Bitcoin price cycle, reach out! From a news perspective, it is worth noting that a Bitcoin debate between Jack Dorsey and Elon Musk will take place on July 21st. There is certainly a high possibility that comments from either could have a significant impact on price movements.

Onchain analysis is not my speciality. There is certainly something to it but I tend to think that the majority of the data points that analysts use to assess market conditions are a function of the current price as opposed to vice-versa. However, respected onchain analysts like William Clemente III and Nick from Ecoinmetrics show some reasons to be bullish from the onchain perspective. Onchain data shows that Bitcoin whales (addresses with holdings of over 1k BTC) are beginning to reaccumulate at current prices which would certainly be a strong bullish proponent for future price prospects. I would suggest diving into the original pieces linked above for a better understanding of what is happening onchain.

Given all of the above factors, here’s my take. For the bearish trend to continue, it needs to break through the strong buyer liquidity resting between the current price and $28k. Leveraged trading activity in the perpetual futures market is unlikely to do this sustainably so significant selling pressure needs to be applied in the spot market. Until that happens, the medium-term downtrend is on a hiatus. However, if it does occur, it is likely that the medium-term downtrend will continue and there may be extremely attractive accumulation opportunities between $20k and $28k. With that being said, here are the factors that favor the bear case.

The Bear Case

(Source: Tradingview.com)

There is strong evidence to show that trend is king in the cryptocurrency markets. See here, here, and here. This is slowly changing with a greater share of the market being attributable to institutions but we are still yonks away from trading activity being primarily driven by fundamentals-based valuation models.

With that being said, the trend plays an outsized role in the price prospects of Bitcoin. When the trend reverses, as it did in early May, a myriad of factors start to work in the opposite direction. When the trend is upward, bearish news tends to have a null impact while bullish news can result in significant upside movements. The opposite is true in the case of bearish trends.

On a rudimentary level, areas that were once areas of strong buyer liquidity transition into areas of strong seller liquidity. I foresee two major areas bringing in significant seller liquidity. $39k to $42k has already shown that it has a heavy concentration of sellers. Above this, $49k to $51k will also likely have a heavy concentration.  If this level can be overcome, the odds of all-time highs being reclaimed will significantly rise and we will be in a zone that is more favorable to leveraged long trading.

These two pockets of seller liquidity show that price has some significant hurdles to overcome before its upward trend can be continued. We are still deep in the downtrend. Although the trend has entered a momentary hiatus, we certainly have not resumed an uptrend.

Another factor corroborating a bearish outlook is the nature of bottoms. Market bottoms are often associated with points of maximum pain. When I consider the latest bottom, there was little pain. Most maintained their bullish disposition and claimed that the drop was the last time that Bitcoin would drop below $30k. When I see some stronger hands questioning their position, that would indicate to me that the market may be approaching a point of capitulation. It would be interesting to see Bitcoin price drop below MicroStrategy’s average purchase price. Given that MicroStrategy played such an important role in the latest bull cycle, it would likely leave many questioning their investment decisions if their holdings were to turn into negative territory. This would likely be more characteristic of capitulation and would also bring BTC price close to the all-time high of its previous market cycle at $20k.

To sum up, price prospects are uncertain while Bitcoin continues to trade in its current territory. There are arguments to be made from both the bullish and bearish perspective. As I mainly seek alpha from speculating on the trend, I will be waiting for BTC to break its current phase of consolidation before taking further positions. If you enjoyed this piece, it would be a big help if you liked and shared the below tweet.

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Still Bearish…

Bullish Bitcoin social media blabber ungrounded in data.

Disclaimer: Nothing in this piece is financial advice. It is strictly educational information. Take responsibility for your own financial decisions.

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Crypto Twitter has recently been inundated with rally cries insinuating to Bitcoiners that they would be outright foolish to sell some of their exposure in response to recent market movements. I disagree. Just check the below tweet from Mister McCormack as a shining example of such one-sided optimism.

One more for good measure…

The prevailing narrative on social media is that the recent declines are the final leg of such bearish activity and those that sell some of their holdings will ultimately regret it. Before I present my own analysis, I need to point out that the prevailing narrative could indeed be correct and I could be wrong in my outlook. However, such prevailing narratives are based on little other than popular belief and the majority of statements are not supported by even a single data point. I should also highlight that I am heavily long Bitcoin but I take leveraged short positions and adjust my exposure when I anticipate declines, as I have done recently.



So let’s look at what the data suggests to me. Firstly, as highlighted in my last analysis, there is no denying that the medium-term Bitcoin market trend is downwards and it has been since mid-May. Since then, Bitcoin has recorded some significant daily downside movements, including a 12% and 14% on May 12th and May 19th respectively, both catalyzed by comments from Elon Musk. Bitcoin price has also found seller liquidity in the low $30ks on several occasions, knocking on the door to say, and succeeded in entering through the door briefly on the last test. The next knock is more likely to be followed by a firm entry, as the recent tests have diminished some of the buyer liquidity resting around the $30k level.

(Source: Tradingview.com)

Such chart analysis is rudimentary and certainly does not give anyone an edge. However, it does highlight the predominant trend and that is useful. It is useful because if you understand the dynamics of trends, everything currently works against Bitcoin price appreciating. Levels that were previously areas of buyer liquidity are now areas of seller liquidity. Bearish news developments are more likely to cause downward price movements while bullish news is more likely to have no impact. Such a trend either requires a bullish development to change market dynamics (which nobody can forecast) or it requires the market to reach a point of capitulation so that healthy demand-supply dynamics can be established. 

Given that no catalyst happens in the intermediate-term to change dynamics, how do we know when such a point of capitulation is reached? We can never know for certain but there are some signs. At market tops, a strong signal that the market is overheated is when retail capital is taking excessive risk. When fresh retail capital leverages heavily, it is a sign that the capital inflow to the market has reached its maximum and that the market may be setting itself up for a change of dynamics. In the words of the late Matt D’Souza, capital inflow and capital outflow is what determines the long-term trend.

Similarly, at a point of capitulation, there will likely be signs that capital outflow has reached its maximum. When previously avid Bitcoin holders are liquidating significant shares of their holdings, that is an indication that the market may be approaching capitulation. In the March 2020 capitulation that brought Bitcoin prices to sub-$4k, I was legitimately surprised by some of the people who lost belief in the asset and sold significant shares of their holdings. Such a point of capitulation does not need to be so severe but there will likely be some signs that capital outflow has reached its maximum and capital inflow is starting to accumulate. At the moment, all the signs indicate to me that it is still the weak hands that are selling their holdings. My outlook will be reassessed if I get signs that semi-strong or strong hands are selling their holdings.

Corroborating this outlook is the fact that the smart money in the CME futures market remains short. Leveraged funds, entities that specialize in speculation such as hedge funds and money managers, are heavily short. 

The retail participants of the market remain long. This a collective position of the entities that don’t meet the minimum order size requirements to be included in the CFTC COT report.

It is also worth noting that perpetual derivatives funding rates have remained negative for over a week, showing that leveraged short-side positions are piling up the perpetual derivatives market. This clearly shows that there are fewer speculators with a bullish outlook in the derivatives market.

(Source: theweeklyupdate.substack.com)

So how am I poisoning myself in response to the recent market developments? I fully exited the short-side position that I outlined in the last piece in the low-$30ks. For the moment, I have no position in the derivatives market but if the price rises to the high $30ks, I believe this will be an attractive risk-reward tradeoff to enter a position. I would seek to exit at a loss in the low $30ks and seek to partially take profit in both the low $30ks and high $20ks. I will readjust this outlook if I get an indication that price is setting up to dump significantly below the $30k level. I give high odds of this eventually happening but as it stands, I will only enter a position if Bitcoin rises to the high $30ks. I emphasize that this is only my outlook and I could easily be wrong.

What evidence is there that I may be wrong in my outlook? Well, MicroStrategy has completed a debt issuance to purchase another 105,085 BTC, advancing the evolution of the company into a proxy Bitcoin ETF and further demonstrating Michael Saylor’s commitment to purchase in all market conditions. Ark Invest has also been increasing its exposure, after buying over 1 million shares of the Grayscale BTC Trust and roughly 215 thousand shares of Coinbase. These are two extremely pro-BTC institutions so it is unsurprising that they continue to flow capital into the market during current conditions. However, there seems to be fewer releases about institutions investing. It would be cool to see some form of web scraper quantitative analysis that assesses this. 

On-chain analysts William Clemente III and Willy Woo both have highlighted data that they interpret increases the odds of a bullish reversal. They point to bullish divergences in the Bitcoin Liquid Supply Ratio and the Spent Output Profit Ratio. While on-chain analysis is interesting, I believe that most on-chain data points have little predictive power and I view them certainly as secondary information pieces to the prevailing trend. More interestingly, William did point to data highlighting that Bitfinex whales recently closed a significant short position and also presented data showing that OTC outflows have generated a buy signal. I would attach more significance to this data but it ultimately does not change my current outlook. William’s summary was “These metrics may not predict immediate (next few days) price action, but I highly suspect a reversal is coming over the next few weeks”. Maybe, maybe not…

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Bitcoin Market Cycle Current Stage

Should you buy the dip or sell the denial?

Quick take;

  • Despite bullish developments, the bearish medium-term market dynamics persist

  • Investors appear to be in a state of denial with widespread proclamations of HODL

  • Anticipating further downside movements before bullish market dynamics return

Disclaimer: Nothing in this piece is financial advice. It is strictly educational information. Take responsibility for your own financial decisions.

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It’s been a while. I have been entirely tied up with client work for roughly the past year. Nonetheless, I have more free time to focus on market analysis now and I intend to publish here more frequently. I may have some exciting projects in the pipeline so watch this space and subscribe. Let’s push past the niceties and jump into an analysis of current Bitcoin market dynamics.



It’s hard to deny that the current medium-term Bitcoin trend is downwards. El Salvador was extremely bullish news and Bitcoin couldn’t even manage to break the previous lower high on the daily chart. Bitcoiners have been pumping the bullish development for every cent it is worth but BTC nonetheless is struggling to break the bearish trend that has been firmly in place since the second week of May. A daily price jump of 12% was the result of all of the bullishness and craze surrounding the Bitcoin 2021 conference but the jump failed to break the trend and was on volume that was lower than the 180-day moving average.

(Source: Tradingview.com)

I am personally using the jump to enter a leveraged short position at more attractive risk-to-reward ratios. I will be looking to take profit in the low $30k while I will exit at a loss closely above $40k in the case that the market rises from here. I have been heavily long Bitcoin long-term but I always seek to capitalize on potential downward price movements by taking leveraged positions in the derivatives market.

Simply analyzing past price movements is ultimately a rudimentary form of analysis. It needs to be taken into consideration within the context of a wider framework. What institutions and retail are doing is one of the strongest signals that indicate where the market may be moving. I decreased my Bitcoin exposure early in May as three noobs told me about the crazy risk they were taking in the market within a short timeframe. 

That indicated to me that the market was overheated. Those with little experience were taking excessive risk, suggesting that the market was overleveraged and that retail capital was almost fully allocated. The market could have easily kept rising from there as it tends to heavily overextend during euphoric phases. However, it didn’t and decreasing exposure turned out to be the smart call.

Where in the market cycle are we now? I could be wrong and Bitcoin could go on a tear but the recent sentiment appears to be characteristic of denial. The Miami Bitcoin 2021 conference has just taken place and the only thing that outshone the anticipation of the event was the antics that took place at it.

The event was swarmed with outlandish proclamations of HODL and BTD. The bullish announcement of El Salvador accepting Bitcoin as legal tender was heavily pushed but the market failed to break prevailing dynamics.

If this analysis is somewhat accurate, the market likely has more room to bleed. I have no intention of increasing my Bitcoin exposure in the near-term. If the market enters territory below $25k, I will reassess and likely start increasing exposure. 

On a final note, it is worth noting that institutions are the smart money while us mere mortals can only use the tools at our disposal to try and anticipate movements. However, looking at what institutions are doing is one way of doing this. Interestingly, the Grayscale Bitcoin Trust, the largest Bitcoin exchange-traded product that is mostly traded by institutions, has been seeing very consistent weekly outflows for the past three months.

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Fuel for Bitcoin Price Rises

Analysing a Paradigm-Shifting Price Rise in the Bitcoin Market

Disclaimer: I have long exposure to Bitcoin. Since Bitcoin’s rise above $10.5k, I have also been taking leveraged long positions in the BTC derivatives market. Nothing in this newsletter is financial advice. Read the full disclaimer here.

This post was originally published here.

It’s been a while since I have given a proper update on this mailing list. I have been focused on writing work for clients so this newsletter has taken a back seat in recent months. But my outlook for Bitcoin recently changed which deserves an update.

It’s been a long time since I have been this bullish on Bitcoin price prospects. While I have always been extremely optimistic on the long-term case for BTC price recording huge appreciation, I have not been convinced on the short-term to mid-term case for most of 2020. Until recently.

The 11% price jump on July 27th brought Bitcoin price above a paradigm-shifting level which drastically increased the odds of price reclaiming Q2 highs. In this update, I break down why this price rise likely shifted the tide in the Bitcoin market.


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The Primary Fuel for Price Increases

There are many narratives we can create and data metrics we can highlight to paint a bullish Bitcoin outlook. I will highlight some of these later in the article but these are secondary to another factor. Strong price performance is the primary fuel for future price increases. It is no surprise that the huge price increases observed in the latter end of 2017 came after a bout of record highs being formed.

Price increases act in a self-reinforcing manner. BTC price appreciation is Bitcoin’s best promotional tool. It spurs speculative activity, publicity, and talk. All the speculative activity, publicity, and talk lead to increased trading volume, interest, and on-chain activity which begets yet further speculative activity, publicity, and talk.

This cycle also highlights a fallacy which most analysts are unaware of. Many of the metrics that analysts use to paint a bullish picture only look bullish after price rises. For instance, Google searches for “buy Bitcoin” rise after Bitcoin price rises. Similarly, on-chain metrics will jump after Bitcoin price rises as the price jump will spark on-chain activity.

While this property is somewhat present in all markets (often referred to as the theory of reflexivity), it is particularly true of Bitcoin given that the market is still relatively new. The early-stage of the BTC market means that it is largely driven by speculative activity. Fundamentals will play a more significant role in moving price as the market evolves and attracts more and more capital. But as it stands – regardless of all the talk of fundamentals – Bitcoin is still a market which is dominantly driven by speculators.

The Paradigm-Shifting Price Jump

(Source: Tradingview.com)

That brings us to the ~11% Bitcoin price jump that took place on July 27th. The reason I believe that this increase was so important is that it brought price far above $10,500, a level which BTC had repeatedly failed to sustain valuations above.

Many bullish narratives and arguments have been made for Bitcoin this year. A bullish picture can certainly be painted with the data and we will do that below. But it all means little if price continuously fails to overcome a certain point. Bullish expectations related to the halving was a particularly potent narrative which failed to manifest in higher prices.

Any of the bullish narratives that were circulated quickly died away as Bitcoin sold-off several times after approaching $10.5k. Bitcoin significantly sold-off in Oct 2019, Feb 2020, and June 2020 at this level.

These repeated failures eventually took their toll on the market. Enthusiasm died off and trading for June and the majority of July reflected that. June recorded the lowest month of trading volume since March 2019 and July was even lower. It was only on July 27 that volatility was reignited.

In the lead-up to July 27th, a hype surrounding DeFi and a prolonged outperformance of altcoins improved sentiment for crypto investors. This unsurprisingly found its way into the Bitcoin market.

As price surpassed $10.5k, several data metrics indicated that the tide had clearly shifted in the BTC market. Sentiment data further improved and perpetual futures interest rates also jumped showing that most participants in the derivatives market started taking leveraged long positions.

(Source: Skew.com)

The importance of $10.5k was further showcased by the market when price retraced to this level on both the 28th of July and 2nd of August. The sharp drop on the 2nd August came shortly after price surpassed $12k and catalyzed ~$147 million in BitMEX liquidations.

In summary, since BTC surpassed $10.5k, sentiment data improved and most of the market started taking leveraged long positions. This supports our viewpoint that the primary fuel for price increases is strong price performance. Furthermore, with price now trading above a key level, any bullish narratives that surface will have a higher likelihood of sticking and manifesting in further upside price action for Bitcoin.

Bullish BTC Narratives

Here are some of the narratives and metrics which analysts may bring up to anticipate further price increases in Bitcoin:

  • Key retracement levels surpassed

  • Demand-side dynamics improving

  • Supply-side dynamics improving

  • Macroeconomic developments

Key retracement levels overcome – Bitcoin has arguably been in a long-term downtrend since the ~$14k highs of Q2 2019. The recent price jump led to a weekly close above key retracement levels between the Q2 2019 high and the March 2020 low of the downtrend. From a technical analysis basics perspective, if over 66% of the downtrend is retraced, the odds that price will reclaim the highs of the trend drastically improve.

(Source: Tradingview.com)

Demand-side dynamics improving – There have been some recent updates from major purchasers of Bitcoin. Square Crypto booked revenue of $875 million in Bitcoin sales through their Cash App during Q2*. This is a huge increase in their buying activity compared to Q1 when $299 million worth of Bitcoin was purchased by the firm. Square is not the only firm that has been ramping up BTC buying. Grayscale recorded inflows of $751 million into their Bitcoin Trust product (GBTC) in Q2. To provide a greater number of investors with exposure to Bitcoin price, Grayscale have increased their holdings of Bitcoin by over 125k this year. Another major purchaser has also emerged. Nasdaq-listed MicroStrategy recently announced that it has purchased ~$250 million worth of Bitcoin as part of a new alternative investment strategy.

*The Square Crypto Q2 report records that the firm spent $858 million purchasing Bitcoin to record this revenue. Their margin is the difference between the cost they acquired Bitcoin at and the price sold to Cash App users.

Image

(Source: Twitter.com)

Supply-side improvements – Bullish adjustments in the demand-side of Bitcoin have been accompanied by bullish adjustments in the supply-side. With less Bitcoin being issued since the May 2020 halving, this puts upside pressure on the price to facilitate constant or higher demand levels. Furthermore, the amount of holders with unmoved Bitcoin for one year or longer is at record highs. ~63% of circulating BTC has currently been unmoved for 1+ years. With fewer holders willing to sell move their BTC, this could also be considered to put upside pressure on the price to facilitate constant or higher demand levels.

(Source: Glassnode Studio)

Macroeconomic developments – Many macroeconomic arguments have been brought up this year to make a bullish case for Bitcoin. The extraordinary monetary stimulus that central banks and governments have coordinated in response to the COVID-19 crisis has been a recurring theme. The USD M2 money supply has increased by over 19% year-to-date. Furthermore, Bitcoin has recently been recording historically high correlations with gold. As gold is a widely recognized risk-off asset, Bitcoin showing high levels of correlation with gold may make it a more suitable contender for serious macro investors.

(Source: Skew.com)

Price Increases Providing the Fuel for Further Price Increases

A myriad of reasons to be bullish on Bitcoin have been brimming in 2020. However, any bullish reasons and narratives that surface have shown a poor ability to manifest in further price increases as BTC repeatedly failed to sustain valuations above a key level. After the recent price jump in late July, these narratives look far more likely to stick and result in further price increases.

It should be noted that none of the risks associated with Bitcoin have been discussed in this piece. Bullish developments need to be taken as part of a nuanced view which also considers key risks. Bitcoin remains an emerging and extremely experimentative technology that is subject to many risks.

-John


About Adaptive Analysis

Adaptive Analysis is a content strategy and research agency for crypto and finance businesses. We help businesses drive traffic to their website, improve their SEO, and establish their brand as an authority in its field. Get in touch through Twitter or email.

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