Welcome to The Bitcoin Forecast #029.
As some may have noticed, I’m trying out a more frequent incremental style of newsletter. I’ll increase the cadence when price action is in a zone of interest. And yes, we are currently in a zone of interest.
To recap, the forecast detailed in the last two letters are still in play; that of sideways to bullish consolidation culminating in a strong bullish breakout. This is an update on the latest data which I hope will be timely for those working on smaller timeframes.
Top level summary for 4th Sep 2021 (current price $49.9k):
> Macro & mid-macro: Please refer back to the last letter. We have now entered the “second great re-accumulation” of this bull market. Now is a good time for long term investors to purchase BTC with reduced downside risk. The macro on-chain structure suggests this bull market will extend into 2022.
> Short term: Investors continue their strong accumulation of coins, particularly whales. These coins are moving to medium term investors more than long term investors. The latest price stability data coming in today has signalled a large price move being imminent.
> Price action expectation: A bullish breakout starting this week followed by a strong move to $60k.
> Price action conviction: Medium (Confidence downrated to medium because traders on leverage markets are expecting a bullish break. Additionally the latest round of investor buying has been more speculative in nature).
All the best until the next letter.
A price squeeze is imminent
BTC has been consolidating in a sideways bullish manner for over a month. The question we all have is when will price make its next major move.To answer this I turn to the Bitcoin price stability chart below. This is the chart I’m most focused on right now as it gives clues to when our next price move will happen and its likely strength.
Investor buying remains strong
Here’s a quick update on the accumulation we are seeing since the last letter…
Investors continue to scoop up coins under the $50k resistance band. This is both short term and long term bullish.
And whales in particular make up the bulk of the buying. This is short term bullish.
Given the strong levels of accumulation taking place under the $50k resistance level, the probability is strong that the breakout will be bullish.
Speculative buyers outweighing long term investors
I’ll take this opportunity to dissect the buying activity with our array of Supply Shock metrics. First a recap:
> Exchange Supply Shock tracks demand and supply via speculative coins on exchanges vs investor coins held in self-custody wallets
> Highly Liquid Supply Shock tracks on-chain demand and supply with focus on medium term speculators.
> Liquid Supply Shock tracks on-chain demand and supply with focus on long term investors.
In the chart above we can see Exchange Supply Shock (1) is very bullish reflecting the sheer amount of coins that have been bought and moved off exchanges and into personal custody. These coins have moved to medium term investors who have a tendency to speculate. We can see this in a sudden rise of Highly Liquid Supply Shock (2) without a similar rise in Liquid Supply Shock (3).
In summary, much of the buying has come from medium term investors, we will need to see whether long term investors come in to take up some of their coins. If not, then there could be some sell pressure from these investors once BTC reaches its next resistance level ($58k-$60k).
Taking an on-chain view, ETH has plenty of bullish moves ahead of it. As we can see in the chart below, price is still in a deeply discounted region compared to fundamental demand and supply.
That’s fine for the longer timeframe picture, in the shorter timeframes we’ll need to look at the technical view…
It’s now inside a resistance zone formed by its prior all-time-high in May, with early signs of bearish divergences forming.
Overall my expectation for ETH is sideways consolidation. Should BTC break its resistance and make a strong run, I would expect ETH to have the second follow up move with a “catch-up pump”.
Bitcoin Dominance has now moved to the support line which I pointed out in the last letter.
There are currently three impacts to consider:
> BTC is threatening a strong breakout
> ETH is consolidating
> BTC Dominance is now on a support line and is approaching a high probability zone for trend exhaustion (TD9 reversal signal for tomorrow)
My expectation is capital rotation back into BTC; the alt-season rally we’ve had is due for a pause.