Has Bitcoin Proven The Bottom Is In For Crypto?

Bitcoin went on a 10-day winning streak that was the longest in eight years and broke above key resistance levels. Does this mean that we’re out of the bear market? Let’s look into some analysis and on-chain metrics….

Bitcoin reached an all-time high near $65,000 US in mid-April as market euphoria peaked and the U.S. exchange Coinbase went public through a direct stock listing. But the price tumbled over the next few months as China cracked down on cryptocurrency mining and exchanges and regulators around the world moved to tighten industry rules. The Federal Reserve began to consider tapering its $120 billion-a-month of asset purchases – a form of extreme monetary stimulus that has been a big driver of the investment narrative that bitcoin could serve as an effective hedge against inflation and currency debasement.

Retail investors who had piled into bitcoin as prices soared early in the year rushed to exit positions, while big institutional investors grew reluctant to enter the market at lofty valuations. Prices traded in a range between $30,000 US and $40,000 for about two months. But after bitcoin briefly dropped below $30,000 on July 20, the cryptocurrency began a steady ascent that has put it on track for an 18% gain in July, the first monthly increase in three months.

Data tracked by Glassnode show bitcoin’s illiquid supply, or the balance held by illiquid entities, decoupled from prices in May, signalling renewed holding sentiment. The measure reached a record high of 14.447 million over the weekend.

“Amount of bitcoin held by the strongest holders has retraced the whole dump and surged to [all-time high]. This is very bullish,” Lex Moskovski, chief investment officer at Moskovski Capital, tweeted.

The figures show investors are again holding for the long term, therefore reducing the supply of coins available for sale in the market. Bitcoin supply currently is 18.77 million, or 89% of the 21 million hard-coded cap. However, according to Glassnode, the actual number of coins available for trading is much lower due to increased hoarding by investors and permanent loss of mined BTC over the years.

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While bitcoin moved with illiquid supply from October 2020 to May 2021, it diverged in mid-May. The link may now be reestablishing. A similar split occurred for several weeks before bitcoin began its rise from $10,000 in October 2020. If the illiquid supply continues to rise, a supply-side crisis may emerge, and last year's price surge may be repeated.

From a technical side, the bull case strengthened after bitcoin printed a price above the three-month descending trendline. In an ideal bullish scenario, older coins will remain dormant, spending will remain low or decline, and conviction to hold stays strong. If older coins do start spending, but prices continue to rally, this would indicate a bullish disbelief rally may be in play, and the market is absorbing the spent supply.

In the last week, we also saw an extremely large volume of coins flow out of exchanges, comparable to the peak outflows seen in November 2020. The rate hit this week was over 100k BTC per month in outflows.

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As a final closing note, there continues to be extremely low activity on-chain. The current entity adjusted transaction count remains down 38% from the peak set in February. On-chain activity can often follow positive price action, current levels are equivalent to the 2018-19 capitulation bottom…

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