Bitcoin looks poised to reach fresh price highs according to a flurry of crucial on-chain indicators.
Analyst Willy Woo listed signals that showed an uptick in bitcoin trading activities across the US cryptocurrency exchanges. For instance, a metric that measures the total available BTC balance on trading platforms alerted an ongoing decline in reserves. It showed that traders constantly turned into long-term bitcoin holders, thus creating a supply shock in the market.
Meanwhile, a subset of the same indicator showed the so-called “weak hands” transferring their bitcoin ownerships to “strong hands.”
The activity illustrated the absorption of selling pressure. Traders with short-term risk appetite decided to secure their profits much earlier in the bull run. Meanwhile, those with a long-term investment setup decided to buy bitcoin at its local highs and lows, counterbalancing the bearish bias with accumulative actions.
“This is insanely bullish of course,” said Mr. Woo, pointing to the chat below. “Strong hands have been buying every dip which has been driving price steeply upwards since Q4 2020. Red bars track the number of coins moving from weak hands to strong hands each day.”
The M2 Supply
Institutional accumulation of Bitcoin tokens began against the backdrop of monetary inflation.
Governments, companies, and households raised $24 trillion last year to offset the coronavirus pandemic’s economic toll. It pushed the global debt up to $281 trillion by the end of 2020, which made up to 355 percent of the global gross domestic product. Economists note that the debt would rise by another $92 trillion in 2021 as central banks maintain ultra-low lending rates and government borrowing surge.
As a result, fiat currencies risk becoming cheaper for savers, including corporates that sit atop a massive amount of cash reserves. In the US alone, companies have borrowed about $2.5 trillion on bond markets during 2020. Meanwhile, the US dollar index, a barometer to measure the greenback’s performance against a basket of foreign currencies, plunged by more than 12 percent.
New Bitcoin All-Time High
Buying bitcoin with excessive cash reserves lately emerged as an offbeat investment strategy. Companies like Tesla, MicroStrategy, Square, and Meitu added billions of dollars worth of Bitcoin to their balance sheets, raising hopes that more corporates would copycat their moves.
“In my opinion, what’s happening is US institutions and high net worth individuals are scooping up the available coins from weak hands and locking it up as strong HODLers in response to monetary inflation,” said Mr. Woo. “Coinbase BTC supply dropping off a cliff suggests US institutional buying there.”
The phenomenon expects to extend its stay as the US Federal Reserve decides to maintain its loose monetary policies until 2023. Meanwhile, President Joe Biden’s $1.9 trillion stimulus package, coupled with his plans to boost infrastructural spending, also provided tailwinds to the ongoing Bitcoin rally.
Among the risks remain policy tightening amid US economic recovery and strict regulations.