On-chain data shows that Bitcoin is experiencing a strong recovery, both in terms of hashing power and fundamentals. Is the market getting ready for an explosive second half of 2021?
Let’s dig in.
BTC hash rate recovers as Miners Leave China
The Bitcoin hash rate is on a steady incline as miners fleeing from China turn their rigs back on. Since the June low around 84 exahashes per second (EH/s), the hash rate has ticked 50% higher, reinforcing the fact that Bitcoin is ultimately agnostic of hostile country regimes.
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BTC Balance on exchanges trends lower
On-chain data is useful for contextualising price-action, which in turn provides the groundwork for price expectations, the depth of potential retracements, and overall market health.
As of August 30th, bitcoin balance on exchanges is forming new lows.
The data implies that investors and traders are taking liquidity away from the market and into cold storage, where that bitcoin is less likely to be spent. In other words, more bitcoin off exchanges means less selling pressure.
If the trend continues, this is quite bullish and helps to place a ‘cap’ on potential downside scenarios.
USDT (Tether) Balance on exchange ticks higher
At the same time, USDT is ticking higher. Specifically, the 23rd of August saw Tether balances on exchanges spike from $4.8 billion to $6.7 billion the following day.
One explanation could be that investors cashed out their positions at the $50,000 mark into the stablecoin. While this is likely part of the explanation, USDT is not only sitting on exchanges, but actively increasing.
The above chart shows the net position change of USDT on all exchanges, averaging close to $2 billion in net inflows per day.
This is dry gunpowder.
Long term investors double down
Finally, Bitcoin holders are also doubling down.
When Bitcoin holder net position change is negative, long-term investors are said to be selling. But when the net position change turns positive, long-term investors are acquiring bitcoin.
As you may have noticed, these findings appear to run contrary to the last newsletter, where we discussed the prospect of a self-off at the start of a new month brought about by weakness in traditional markets.
Since then, BTC/USD fell back to $46,300, only to be pushed back to $49,600 days later before cooling off again. While a period of consolidation may still be in play, the $46,000 line still stands as support at the time of writing.
Price-action and on-chain data are also beginning to resemble prior periods of accumulation where the market gears up for the next leg higher. We observed relatively choppy price-action in August — September 2020, during which time market participants were both accumulating Bitcoin and funnelling stablecoins onto exchanges, ready to inject capital into the market.
As such, this is not so much a change in bias as it is a recognition that on-chain data does not suggest that the bull run is over. On the contrary, it shows investor optimism and market-readiness for bitcoin and cryptocurrencies.
From a technical perspective, $46,000 remains the line in the sand for short-term gains, with $49,000 offering low time frame resistance. If captured, the last selling block which characterised the pivotal moment when the market turned in May will be open for business. For all intents and purposes, $57,200 is the last resistance level before new all time highs. When this order block is eventually captured, the first take-profit area would be the 1.618 fib extension level, which rests at $ 88,000. I expect this number to be the minimum price target for the year’s end.
The mid-term bullish outlook becomes shaky if the key January support at $42,100 and the psychological $40,000 level fail to buttress prices in the event of a sell-off.
Either way, the on-chain evidence bolsters arguments for continuation at the time of writing. This may change in the future, which is why monitoring the markets and remaining up to date is essential.
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Bulls lead the way.
Catch you later.
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