Amid the recent rebound in Bitcoin price to $ 40,000, there are both bullish and bearish arguments for the future based on on-chain data alone.
Over the past week and as we hit the $ 40,000 mark, there are some promising signs in the data on the chain that could result in further price rally in the market. However, some metrics make an immediate rally back to the all-time high a questionable probability.
Let’s examine the bull and bear cases for Bitcoin price in the current market situation, which is mainly derived from information in the chain.
To summarize the general bullish signs from an on-chain perspective, we can look at the exchange’s net change in position on all exchanges.
The change in the offer held in the exchange wallet in the last 30 days is examined. To make things smoother, there is a 90-SMA version of the metric, which is shown in the table below.
Historically, there is a repeating pattern across all of the last three Bitcoin cycles.
- Around the middle of the cycle, in the bearish phase, there is usually a significant surrender and we see a slight net decline in the stock market’s reserves (red circle)
- Before the significant bull run phase, there is an enormous negative net change in the Bitcoin reserve of the exchanges (yellow rectangle). In practice, this is an accumulation phase for experienced market participants. These stakeholders intend to withdraw from exchange wallets.
- Through the following phase, euphoriawhere the prominent entities in the market (whales, institutional players and smart money) sell into the strength of the market. Here in this phase, incoming Bitcoins are bought in exchanges by newcomers who intend to do so keep their assets on the stock exchanges.
The first two parts of the above pattern have already occurred in the current cycle. Therefore, assuming Bitcoin repeats the three parts of the cycle, we could be at the beginning of a long bull run similar to that of 2013 with a double top formation.
Aside from the positive signals from an on-chain perspective, the metrics attributed to the level of activity on the network still do not promise a robust recovery.
This lack of activity on the network is in the Number of active addresses and Number of transactions. These parameters have decreased by 50% after the recent decline due to Fear, Uncertainty, and Doubt (FUD) in newcomers. The most important fuel for a bull run is the inflowing capital of these investors who are ready to buy Bitcoin at inflated prices.
While some early evidence, like supply shock structure, could lead to a healthy rally on a new ATH, some on-chain metrics are still not back on the pre-price crash. The most important metrics to watch here are volume, number of transactions, and new addresses on the blockchain.