It seems like stimulus isn’t coming until the election and the market does not like it. On top of this, it seems that we continue to see an uptick with European cases, and the US is no better at containment. Uncertainty hits the market hard as it’s dictated by news rather than actual intrinsic value.
Bitcoin is showing signs of resilience as it traded sideways as equities took a dip. Gold also seems to be holding off, which may imply the start of a divergence between safe haven assets and equities.
Painting The Picture For 2021
This week, bitcoin secured its second-highest weekly close since January 2018. Bitcoin has beaten out the long-term weekly resistance at $11,900 while holding these high levels. In recent history, brief spurts above $12k all ended in rejection and a retreat to lower levels on weekly timeframes. Analysts hope that this time is different, and an increase in whale activity can create fundamental support.
BTC/USD weekly chart. Source: TradingView
Short-Term Pullback In Sight
After working overtime, bitcoin deserves a break. With on-chain metrics, we can conclude that the network is experiencing a cooling period. We hope that it’s a reset for new highs, but there’s a chance that it may be a burn out.
According to data from BTC.com and Blockchain, difficulty and hash rate are or will be trending down in the near future. For those who don’t know, difficulty is a measurement of miner activity, and we see that it may decline by 1.6% at the next readjustment period, which is in 6 days. The weekly average hash rate has been sloping downwards from its highs since October 18th. As of October 26th, the average is 133 exahashes per second (EH/s) with the record being 146 (EH/s).
Bitcoin 7-day average hash rate 1-month chart. Source: Blockchain
With the anticipation of a pullback, what can we expect? Well, what we can hope to see is a support at $12.5k. Why? Because $12.5k is near the 10-day moving average on the daily chart, it’s the top of the previous peak of August 17th, and new whale clusters formed around that price. As discussed in previous articles, whale clusters form a natural price floor as high-net-worth individuals accumulate and take a meaningful share of the market. If they don’t move, then we have nothing to worry about. If they get spooked by prices falling below $12k, then they’ll start to offload their position to mitigate risk, then we’ll have a problem as our price floor gets swooped from under us.
Bitcoin whale clusters. Source: Whalemap
What’s the best-case scenario? Bitcoin finally decouples from equities, a small pullback to $12.5k encourages institutional investors to get in, and more news of adoption comes out. But alas, we only get so many shooting stars.