As Bitcoin (BTC) continues trading sideways inside the $30,000–$40,000 range, new data is emerging about the potential for a bullish breakout.
Is Bitcoin silently readying for a breakout like in Q4 2020?
Willy Woo, an on-chain analyst, anticipates a potential supply shock in the Bitcoin market, as long-term holders continued raking BTC supply from short-term ones. Woo stated in his Friday newsletter that the process might push more Bitcoin out of circulation.
The analyst referred to the ratio of Bitcoin held by strong hands versus weak hands — also known as Bitcoin Supply Ratio — noting that the former is actively absorbing selling pressure from whales who have been dumping their crypto holdings since February.
BTC’s availability on exchanges is declining with respect to the supply (blue), leading to a supply shock (green). Source: Woobull
“It reminds me of the supply shock that went by unnoticed by the market in Q4 2020,” wrote Woo. “Pundits were debating whether BTC was an inflation hedge in a post-COVID world when the data was pointing to long term investors stacking BTC at a fast pace.”
“The price subsequently went on a tear, very quickly de-coupling from its tight correlation with stocks.”New active users rising
Glassnode, another on-chain data analytics service, also boosted Bitcoin’s booming adoption prospects. The portal revealed that the Bitcoin network has been onboarding an average of 32,000 new users every day, which is a new high for 2021.
Bitcoin network user growth metric reflects rising adoption rate. Source: Glassnode
The Bitcoin Network User Growth metric last topped in January 2018, hitting approximately 40,000 before correcting lower alongside the prices. It showed that new users stopped coming to the Bitcoin network as its price crashed from the $20,000 top in January 2018 to as low as $3,200 in December 2020.
“This is not the structure we are experiencing right now,” explained Woo. “New users are taking this opportunity to buy the dip; they’re coming in at the highest rate seen in 2021.”
“Again, another example of on-chain data showing divergence to the price action.”
Bitcoin is currently stuck below $34,000 at publishing time, up 17.52% from its previous bottom level of $28,800 on June 22.
Meanwhile, Petr Kozyakov, co-founder and CEO of crypto-enabled payment network Mercuryo, believes that Ether (ETH) may steal the limelight from Bitcoin in the near term as the London hard fork approaches.
“The proposed launch of the London Hard Fork upgrade and the ultimate migration to Ethereum 2.0 is helping to renew investors’ confidence,” he added. “Once the hype settles, Bitcoin could move up to $50,000 in the short-to-medium term perspective.”
Bitcoin withdrawal transactions hit one-year high
Data analytics firm CryptoQuant reported earlier Tuesday that Bitcoin’s net outflow transaction count from spot exchanges crossed the 60,000-mark for the first time in a year. Meanwhile, the total number of Bitcoin deposits to spot exchanges’ wallets decreased to below 20,000.
Bitcoin spot exchange inflow and outflow transaction count. Source: CryptoQuant
The BTC withdrawal rate jumped in the period that also saw regulators increasing their scrutiny over cryptocurrency trading platforms. For instance, the United Kingdom Financial Conduct Authority (FCA) has banned Binance — the world’s largest cryptocurrency exchange by volume — from operating regulated activity in the country “without the prior written consent.”
On Monday, Barclays notified its clients that they could no longer transfer funds to Binance, citing the FCA’s order. However, the London-based bank said clients could withdraw funds from Binance to their banking accounts.
Earlier on Tuesday, the People’s Bank of China also took action against a local company for allegedly trading cryptocurrencies on the side of their regular business activities. Beijing had effectively prohibited all kinds of cryptocurrency-related activities in May, effectively forcing the world’s largest crypto mining community in its regions to either shut down or move their operations abroad.
Generally, a run-up in Bitcoin withdrawal rates is seen as traders’ intention to hold the cryptocurrency instead of trading it for other assets, including rival cryptocurrencies and fiat money. Therefore, with overall BTC withdrawals hitting a one-year high, expectations remain higher as Bitcoin is preparing for another upside run on the so-called “hodling” sentiment.
Nope. Looks like retail is back and #HODLing!
— Johan Kirsten (@JohanKirsten1) July 6, 2021
But the total Bitcoin reserves held by exchanges have remained relatively stable since May, indicating that the latest spike in withdrawals has had little impact on the overall exchange balance as of Wednesday.
BTC balance on exchanges. Source: Bybt.com
It’s worth noting that exchanges’ BTC balances can differ greatly based on their geographical dominance.
For instance, trading platforms having association with China and Chinese traders reported declines in their Bitcoin balances. They include Binance, whose BTC reserves dropped by 7,214.97 units in the last week, and Huobi, which processed withdrawals of 4,398.63 BTC in the same timeframe. OKEx BTC balances dropped by a mere 1,357.53 BTC.
However, United States-based Kraken added 6,751.98 BTC to its vaults, the highest among the non-Chinese exchanges, in the previous seven days, while Coinbase’s reserves increased by 168.88 BTC.
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