Bitcoin blasts off to 6-month high: why now?
By Tom Rodgers, Head of Research, ETC Group
Bitcoin added $40bn to its market cap overnight on 16 February as positive sentiment started to gain serious ground and a short squeeze shot the cryptoasset to its highest price in six months.
Bitcoin is now up 11.19% in the last 24 hours to reach $24.5k and Ethereum has jumped a further 8.56% to hit $1,680.
TLDR:
— It started with a short squeeze, but intriguingly smaller than other big shifts, as Bitcoin approaches a key price level
— Trading volume goes nuclear
— Bitcoin Supply in Profit now highest since April 2022
Short squeeze moves markets: key prices approach
Data from derivatives site Coinglass shows that short sellers — those who place bets that the price of Bitcoin is going to fall — were knocked out of their positions between 13 and 16 February.
The figures show that around $190m of Bitcoin short positions were liquidated in the last 48 hours.
When short sellers see their price targets exceeded, they are forced to buy Bitcoin back at the new, higher market prices, which in turn sees available supply of Bitcoin on exchanges falls, and there is a generalised rush from short sellers to buy back at the lowest available price thereby avoiding large potential losses.
With this latest price spike, Bitcoin has run all the way up to $24.5k, its highest price in six months.
What is most intriguing about what is happening this time around is that it is taking relatively small amounts of trader-market positioning to make these moves happen. To us, that infers that there is generalised seller exhaustion at these price levels.
$190m of Bitcoin short positions may seem like a lot, but it’s a fraction of the levels we saw at the back end of last year.
For comparison, look at the final days of October 2022, when short squeezes sent Bitcoin to the edge of $21k and Ethereum 25% higher to $1.5k.
Between 26 October and 31 October, $2 billion in trader positions betting on the price of crypto to fall were liquidated.
They happened across three major leveraged short liquidation events of more than $450m in a day.
So, now smaller short squeezes are moving markets as Bitcoin approaches the key Realised Price level that would mark one indication of the nearing end of Crypto Winter.
Bitcoin prices would have to hold above $25,212 for at least 90 days for this to be the case.
Previous Crypto Winters — so called because they don’t necessarily coincide with equities market slowdowns — have been characterised by extended periods of low price volatility, flat or limited trading volumes, bearish price action and large drawdowns from record prices.
Backed by macro
US inflation cooled slightly in January, marking the seventh-straight falling month, according to data that hit the markets on Wednesday 15 February.
Just as crypto markets looked as though they may dip under the psychologically-important $1 trillion market cap, this added to fuel to the fire from investors whose concerns over inflation are receding.
It has also been supported by recent IMF data showing “surprisingly strong” demand, GDP and growth in North America and Europe, and forecasts raising global growth projections, this means better prospects for falling interest rates throughout this year, and a better environment for risk assets like crypto and equities.
IMF economists have upped their forecast for global growth this year by 0.2 percentage points, anticipating the global economy to expand by 2.9% in 2023 and then by 3.1% in 2024.
2022 was a torrid holding period for Bitcoin investors. Still, network data shows the number of small holders exploded fastest to all time highs amid the November 2022 FTX-induced dip to a Bitcoin price of $16,578.37.
Smaller investors, those who have wallets holding up to 0.1 BTC, climbed substantially between January 2022 and the end of last year, despite the price of Bitcoin falling by 70%.
Holders — or HODLers, if you prefer — have never clung this tight to their preferred asset.
Trading volume goes nuclear
One of the other ways we can categorise market sentiment is to follow how many trades (measured over the course of a 24-hour period, often called ‘volume’) users are making involving Bitcoin.
In the depths of crypto’s market crash, daily trading volume plummeted. Even amid the turn of the year optimism, 24-hour trading volume on 8 January dipped under $10bn for the first time in over two years.
Most in profit since early 2022
One other key metric we can watch to see the overall state of the market is to look at the number of Bitcoin holders selling coins in profit, compared to those selling at a loss. The first position is bullish, as traders are making money and more likely to return to the market. The opposite is also true.
With 13.9 million BTC now in profit, compared to 5.8 million BTC at a loss, this makes a high watermark not seen since April 2022.
Just one final point to note.
Crypto market research analysts like those at ETC Group look at on-chain data to find patterns. We do so by viewing the entire history of the transparently-available datapoints that blockchains produce, then perform calculations to find averages and trends.
So wherever Bitcoin sits in your portfolio — whether you’re a dyed-in-the-wool, no-stocks-allowed BTC maximalist, or BTC makes up just 1% or 2% in the speculative side of your asset allocation, the same is true at all times.
When Bitcoin is undervalued, the market knows.
