A combination of multiple indicators tracking Bitcoin (BTC) blockchain would continue the benchmark cryptocurrency’s price rally further into 2021, popular on-chain analyst Willy Woo anticipates.
In his recent newsletter, the market researcher wrote that he expects Bitcoin prices to reach the $50,000-$65,000 range in the coming sessions. His comments appeared as BTC/USD reclaimed its three-month high above $42,600 only days after crashing below $30,000, the pair’s psychological support level.
“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,” said Woo.
“The next major consolidation band is $50k-$65k.”
BTC supply crunch
Bitcoin price rallied alongside supportive comments from Tesla’s Elon Musk, Twitter’s Jack Dorsey, and Ark Invest’s Cathie Wood in July. The cryptocurrency also rose on rumors that global retail giant Amazon would start accepting it as payments, a claim that the company later refuted.
Meanwhile, Bitcoin’s run-up to $42,600 also came right after Federal Reserve Chairman Jerome Powell admitted the possibility of interim inflationary shocks during a press conference last Wednesday. In detail, crypto bulls treat Bitcoin as their hedge against rising consumer prices.
What’s noteworthy is that the period of Bitcoin’s price recovery from under $30,000 coincided with an increasing liquid supply shock. Specifically, BTC was taken off exchanges, which, as Woo suggested, was due to strong holders locking them away for long-term investment.
“As of today, the Liquid Supply Shock metric is at a level which is consistent with a $55K price level,” the analyst wrote on Aug. 1, pointing at the high deviation between the available supply and the current Bitcoin prices.
“Despite a powerful 44% rally in less than 2 weeks, we are still in a heavily discounted zone for BTC.”
China’s ban on cryptocurrency activities in May played a crucial role in sending the Bitcoin prices lower this summer. The decision paralyzed the regional crypto mining industry that accounted for more than half of the global Bitcoin production.
Glassnode reported in June that miners either closed down their rigs to comply with the new law or shifted their operations outside China, thereby incurring additional costs to keep their production running.
The data analytics platform also noted that miners would likely liquidate a portion of their Bitcoin holdings to cover additional expenses. But, as it turned out, the miners’ net BTC accumulation trend reversed in May, showcasing capitulation.
But as Woo noted, miners resumed Bitcoin accumulation in July. He cited the popular Bitcoin Hash Ribbon metric, which tracks the network’s expansion and loss of hash rate, noting that it was recovering for the first time since the China ban.
“Ribbon recovery events spell the end of miners sell-off (which is what they do when they are driven out of business),” wrote Woo.
“Typically a recovery of the ribbon opens the way for a multi-month period of bullish price action. This indicator did a very good job of locating the price bottom.”
Whale activity spikes
The past week has seen strong buying from whales, added Woo while pointing at Bitcoin’s climb from $29,300 to over $42,600.
Whales typically represent entities that hold more than 1,000 BTC in their Bitcoin addresses. While they don’t exclusively impact the market’s directional bias, their buying in conjugation with relatively small Bitcoin investors points to a strongly bullish scenario.
The analyst noted that all investor cohorts—big or small—were buying Bitcoin for nine consecutive days, an even he has not witnessed in the cryptocurrency’s lifetime.
“The present buying by all cohorts is strongly bullish,” said Woo. “When everyone is buying, who is the seller? The sellers are traders. The coins sold by traders reduce the speculative inventory on spot exchanges.”
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