Bitcoin Technical Analysis — Spike Observed in the Number of Addresses Holding 1,000 Bitcoin
• There has been a spike in the number of addresses holding greater than 1,000 Bitcoin suggesting that institutions may be accumulating
• An increase in fees preceded a price increase observed yesterday
• As Bitcoin mostly consolidated over the past week, the 200 DMA, 100 SMA, and Fibonacci retracement levels have all been worth monitoring
Bitcoin Consolidation Phase Within Wider Macro Bull Market?
Following from a week where an extraordinary two-day price jump was observed, last week’s price action was more subdued with long periods of consolidation. The extraordinary two-day price jump where price appreciated 42% open-to-high corresponded closely with Xi Jinping’s urge for the country to embrace blockchain technology.
This was one of those rare moments where a news development can be strongly linked with a price movement. Last week was devoid of such news catalysts. One analyst noted he believes bitcoin is currently in a prolonged consolidation phase inside of a wider macro bull market.
Technical Analysis of Bitcoin Price Performance — Price Rebounds Above the 200 DMA
The 42% price jump in bitcoin forced analysts to reframe their technical outlooks as the appreciation brought bitcoin price in line with entirely new levels.One key development was the return of price levels above the 200-daily simple moving average (200 DMA), a metric commonly to monitored to gauge the longer-term trend direction.
What may be more important is the length of time bitcoin price traded below the 200 DMA. A study by research firm Adaptive Analysis found that when price traded below the 200 DMA for 6–8 weeks, portfolios could outperform by converting into fiat.
In this case, the price remained below the 200 DMA for approximately one month suggesting that the trend had not yet changed to a longer-term downtrend and the optimal portfolio strategy would have been to maintain long bitcoin exposure.
Since rising back above the 200 DMA, the price has found buying pressure at the level on several occasions. The current consolidation is developingbetween the 200 DMA and the 100 DMA. The 100 DMA can be monitored as resistance with the high of a price increase on November 4th closely corresponding with the 100 level.
In terms of breaking down the wider trend direction, we can split the trend into a medium-term uptrend which started in April 2019 and a longer-term downtrend which started in December 2017. While the 42% increase brought price above the 38.2% Fibonacci retracement level of the medium-term trend (illustrated in green on the above daily chart), selling pressure was found above this area. It is also worth noting that the starting point of the phenomenal 42% price increase closely corresponded with the 61.8% Fibonacci retracement level.
It can be argued that the longer macro trend is still downward with price trading below the 38.2% retracement of the December 2017 high to December 2018 low (illustrated in blue on the above weekly chart). It could be further speculated that this suggests price still has to discover new lows before a longer-term macro uptrend can begin but we argued against this in a previous analysis based on an incentive for miners to stop selling their supply as prices drop to cost of production.
The 42% jump did bring price above both the 38.2% retracement level and the 20-weekly simple moving average (20 WMA) but price retraced below. Both these levels can be monitored for resistance with likely selling pressure lying above.
Bitcoin Fee Increase Precedes Price Jump
Trading started this week on a strong note with roughly a 2.4% appreciation recorded on Monday 4th. Analysts at CoinMetrics have pointed out that an increase in the amount of fees miners are earning preceded the price increase.
While there is certainly not enough evidence to imply that Bitcoin fees increasing imply that price will increase in the future, it is nonetheless an interesting observation. This may spur analysts to test relationships between fees and price.
Such a relationship may play an even greater role in the future of Bitcoin as the block subsidy diminishes. Higher fees would suggest higher margins for miners and for miners who convert into fiat to cover costs would be doing so to a lesser extent.
Are Institutions Accumulating Bitcoin?
Another interesting phenomenon in Bitcoin has been a spike in the number of addresses holding at least1,000 bitcoin. From the 23rd of September to the 28th of September, the number of addresses holding at least1,000 bitcoin increased by 6.4%.
Such a phenomenon suggests that institutions may be accumulating bitcoin. If this description is accurate, it would indicate the smart money has been piling into bitcoin as an asset over the past two months. If the smart money is indeed entering, it would suggest significant upside potential for bitcoin leading up to the halving and beyond.
On the other hand, this increase could also be due to large businesses such as exchanges acquiring as part of their operations. If this is largely the case, the amount being held by these addresses do not reflect long-term investments. Analysts from Glassnode are currently researching this question and assessing how many of these addresses are related to businesses that are required to hold large amounts.
Summary — Exciting Times Ahead for Bitcoin?
It is an interesting time to be involved with the Bitcoin market. As Q4 progresses, there has been much speculation about the impact of the upcoming halving on price. Several price fluctuations have also shocked over the past two quarters.
In the coming weeks, we will be keeping our subscribers informed about updates regarding the state of institutional investment in Bitcoin. If institutions are indeed piling into this asset, it could be one of the best indicators we have for future price increases.
We will be looking at further indicators to help us estimate the state of institutional investment as well as taking into consideration what the leading analysts are researching. Stay tuned!
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