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On-chain activity and price action has been making loud noises in the last 48 hours.
In my last letter we saw the largest impulse of coins changing hands in recent history coinciding with an influx of new users unseen since 2017; a seriously bullish setup. Since then price has rallied from $13k, topping out at $16k.
In this analysis we’ll dig into whether this rally is overheated or not.
Top level summary for 7th November 2020:
Short term (next 2 weeks): Consolidation expected, bullish thereafter.
Mid term (next 3 months): Investor activity continues to climb, bullish.
All the best until I write next, in the mean time I’ll see you on Twitter.
The next 3 months : investor activity is increasing
Since the last impulse of coin movements (which was determined to be very bullish) we’re now seeing another climb in coin movements. In the chart below, the trend of increasing investment activity has stepped up a notch. All macro bull runs require an increase in coin velocity, this is just a fancy way of saying how much of the total supply is changing hands; this activity is in direct correlation to new investors buying.
The current setup is medium to long term bullish.
The next 2 weeks : Bullish but consolidation is expected
SOPR (spent output profit ratio) estimates the ratio of profit investors made from coins that moved on the blockchain to other investors. In the chart below SOPR is in the region where a significant number of investors are taking profits. While not necessarily bearish, it does impede immediate climbs in price.
That being said, during this pump the volume of coins scooped off exchanges by buyers was unprecedented. This price move was entirely organic, powered by significant buyer demand rather than the usual trader driven action on derivative exchanges. I have not seen an organic pump at this scale in years.
The spike in coin buying should not be underestimated, it’s the largest spike in the 5 year chart below.
Despite an extreme $2.5k move in 36 hours, looking at the on-chain movements I am still bullish in the weeks ahead based on unprecedented buying pressure.
It will be worth keeping an eye on derivative funding rates, seen in the chart below. When funding rates are excessively positive, it presents headwinds for price to rise. Funding rates are currently positive also concurring with SOPR that consolidation is most likely.
Glassnode: live chart (free account required)
Overall BTC remains bullish, however price needs to settle. Whether it’s only a couple of days (forming a 2-stage pump) or a protracted consolidation for another week or even longer is hard to tell right now. I stay tuned to the derivative funding rates, it’s likely rates will normalise back to a lower value before the next bullish move.
Links and References
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