Speculation on the length of the current run is endless, with Bitcoin now stable news even in the mainstream press. But what drives the price of BTC up? Is it just the endless multitude of good news, or are there some on-chain indicators that can predict future price movements?
Since the re-test of the $ 50,000 barrier in early March, the price of Bitcoin (BTC) has held fairly steadily above this level. Even a pullback in the last week of March could not be sustained, with the bulls pushing the price to a new all-time high near $ 65,000.
The FOMO effect
The argument that the good news is supporting the market is self-evident simply because it is undeniable that we have seen some sort of FOMO snowball effect among institutions over the past few months.
The bull run started in the last quarter of 2020, and the fact that prices suddenly spiked in October as PayPal entered the crypto space cannot be ignored. Another bullish action followed when JPMorgan launched its long-awaited JPM coin.
This year, MicroStrategy launched an epic buying spree, accompanied by the approval of Tesla with a $ 1.5 billion investment. Big banks, including Goldman Sachs and Citigroup, expanding their service offerings to cryptocurrency have added additional credibility to the argument that crypto is taking its place as an established asset class. More recently, the enthusiasm for Coinbase’s listing on the Nasdaq – the first of its kind in the crypto industry – has also helped ensure that digital assets remain firmly on the global news agenda. .
At the macro level, the ongoing push to get a Bitcoin ETF approved by US regulators is also providing further bullish sentiment. – although, in the opinion of an analyst, it could still be two years before approval.
Was $ 25,000 an institutional price trigger?
While the theory that the good news is supporting Bitcoin prices does not by itself create a long-term bullish case, the market action has obviously been enough to get large investors and institutions to stay on top of things. . An eToroX report released in January, which interviewed institutional players, seems to agree with this notion.
The report found that BTC had to fetch a price high enough to make it attractive to institutions when compared to other barriers to entry, such as regulatory risk, potential for fraud and access to the necessary infrastructure. One respondent even went so far as to set a price threshold of $ 25,000, indicating that current prices are more than sufficient to maintain the commitment of institutional investors.
Johnny Lyu, CEO of KuCoin, also believes that the underlying fears about the state of the broader markets play a role in the institutional adoption of the cryptocurrency, telling TBEN: “The recent rise is linked to the fear of lasting quantitative easing and global inflation. He also took an inside look saying that ‘trading behavior on KuCoin shows Western investors are more involved in this race than their Asian counterparts’.
The reasoning here is that Western countries have been shown to be less able to handle the spread of COVID-19, resulting in increased public spending and a heavier economic impact. However, Robbie Liu, market analyst at OKEx Insights, pointed out that there is still considerable interest in Asian investors. He pointed out that the appetite for stable coins is a bullish signal:
“In the Asian market, the USDT has also entered a positive premium since March, which means that a USDT has traded above a US dollar. This premium also reflects a strong demand for access to the cryptocurrency space. “
When good news isn’t necessarily good news
The problem with the idea that prices are driven entirely by positive sentiment resulting from the headlines is that this does not justify price sustainability in the long run. Simply put, if the good news dries up, prices could reverse, creating a snowball effect similar to bad news in a plummeting market.
From this perspective, it’s worth looking at some of the on-chain and off-chain fundamentals that could affect pricing. There are plenty of reasons to stay positive here. However, some fundamentals suggest that the 2021 bull run is far from over. Glassnode data shows that the volume of BTC held on the exchanges is on a continuous downward trajectory, reducing the liquid supply.
However, the number of addresses containing more than 1,000 BTC recently hit an all-time high, indicating that more whales than ever are choosing to take refuge. Miners have also recently joined the trend, stacking more BTC than they sell. If to use market cycle theory it seems inevitable that the bull run will end at some point – the question is when.
All signs indicate hodling
If selling activity is any indicator, the peak is still a long way off. Long-term hodlers are reluctant to give up on their investments, according to a recent report, which typically happens in the second half of a market cycle as they look to take profit. Therefore, this bull run is particularly unusual, based on previous price spikes. Profit seekers typically cash in after holding between a week and a month. In this case, they are firm.
The realized hodl ratio graph also supports this view, as it reliably correlates to all previous inversions in BTC macrocycles. As the chart below shows, when the ratio hits a level above 50,000, the bull market is about to peak.
If history can predict the future, it will show that the bull run is only towards the middle of this cycle, indicating that a $ 100,000 BTC before the end of this year is well in the realms of the possible. . Jason Deane, Bitcoin analyst at crypto consulting firm Quantum Economics, objected to providing a price prediction. But speaking to TBEN, he said:
“In the longer term, the continued reduction in Bitcoin available on exchanges is very likely to become a bigger factor in price discovery, as more and more are removed for very long-term cold storage and new supply,” via future halves, continues to decline. “
Igneus Terrenus, head of communications at the Bybit exchange, believes that the current speculation seen in the derivatives markets can say a lot about what to expect from the rest of 2021. He told TBEN that: “With contracts at June, September and December terms trading at high premiums. , we can assume that the market is betting on the continuation of the bull run for the remainder of 2021. ”He further added that:“ Longer term, the price of BTC depends as much on its fundamentals as it does on the strength of the market. [U.S.] dollar.”
$ 500,000 and more?
According to quantitative analyst PlanB, stock-flow forecasts reveal that the bull run is at an even earlier part of the cycle than hodl statistics indicate. The analyst’s “Situationational Awareness Stock-to-Flow Cross-Asset Model” chart has followed previous bullish cycles with revealing precision, and hopes are high among hodlers that this one will be no different.
My favorite graph for situational awareness: S2FX for rough long-term level predictions (white line), combined with an accurate bull / bear recognition signal on the channel (color overlay). #InOrbeTerrumNonVisi pic.twitter.com/KZcZCzldgI
– PlanB (@ 100 trillion USD) April 4, 2021
Extrapolating current bull / bear recognition signals, PlanB’s forecast using the S2FX model peaks at $ 288,000 in 2021. However, the price spike during this cycle of halving Bitcoin mining rewards could hit $ 576,000, with the 2021 high forming an average for the entire cycle.
If that sounds ambitious, keep in mind that there is no precedent in Bitcoin’s history for the type of institutional entries that are currently seen, not to mention the lack of liquidity as investors look to. accumulate their assets. So even previous bullish patterns may not be the most reliable predictors of this cycle.
Overall, strong fundamentals combined with a continued sense of FOMO from institutions mean there is good reason to believe this bull market will continue to operate for some time to come.