As bitcoin continues to rise, the whales keep selling to take profits. But, buyers in the United States are accumulating and many now wonder, who will get the upper hand and where will bitcoin’s price head to next?
The bitcoin price reached a new all-time high above $42,000 on January 8, gaining 9% in three hours. At that time, there was a high premium on Coinbase meaning that the US buyers pushed the market up by aggressively accumulating bitcoin. Nonetheless, there is continuous selling pressure that is coming from Asia, mostly from South Korea.
Bitcoin corrected steeply after surging to $42,000, losing over 7% in just eight hours. This sell-off coincided with major whale activity across major crypto exchanges. Trading activity in the altcoin futures market also displayed a similar trend. For example, on January 9, 2021, a whale sold a huge chunk of Ether longs on Bitfinex. The account took profit for the first time since March 12, 2020.
The bitcoin whales have been selling in large numbers since the start of 2021. For instance, when BTC surpassed $40,000, large whales started to sell even as the price dropped below $40K. On January 7, within three hours, the so-called ‘mega whales’ on Binance sold off a total of four times which resulted in extreme volatility.
Where Will Bitcoin Go To Next?
Today, the bitcoin market is experiencing a battle between whales that are taking profit on their positions and the new buyers in the United States market who are accumulating BTC. In that context, there has been constant extreme volatility since BTC surged above $30,000.
As a result of the high inflow of capital into BTC via Coinbase, the upward momentum of the flagship crypto might be sustained shortly. The primary metrics to pay attention to are Bitcoin outflows from Coinbase and stablecoin inflows getting into major exchanges.
Whenever the high-net-worth investors buy Bitcoin, they prefer to move the bitcoin out of the centralized exchanges for security reasons. Thus, high Coinbase outflows would mean a huge accumulation of bitcoin in the US.
When the stablecoin inflows are high, it suggests that sidelined capital is moving back into the bitcoin space. Instead of cashing out to fiat currencies, like the US dollar, traders within the crypto exchange market, mostly the derivatives traders, put their funds in stablecoins.
Thus, if capital stored in stablecoins starts to move back into cryptos, it normally suggests a bullish market structure. In general, the market sentiment surrounding bitcoin remains positive despite an upsurge in the last three months. The chief investment officer of Arcane Research, Eric Wall, said in a tweet that BTC has the potential to see a significantly extreme peak this time around.
It would mean that even if bitcoin could become overheated as shown on technical indicators in the short term, bitcoin could still have some room for more growth. At the current price of $40,000, the market cap of BTC is valued at about $740 billion. Given gold’s valuation of about $9 trillion, this would put bitcoin’s market cap of almost 8.2% of gold.
Bullish projections of BTC, like the famous thesis of the Winklevoss twins, expect bitcoin to surpass gold in the long term. Based on that assessment, some of the analysts say that bitcoin reaching 10%-20% of gold’s market cap is quite realistic.
Wall said that bitcoin might peak when there is maybe a lot of ‘froth’ in the market. If there is an unexpectedly high level of retail excitement throughout the bitcoin market, the possibility of a temporary bitcoin top would increase.
Nonetheless, Wall stated that given the unexpected level of institutional interest in bitcoin, the next peak would be much higher than many would imagine:
“The reason is that our current macroeconomic climate is unprecedented — our economy is being flooded with money. On top of that, we’ve just witnessed an unbelievable level of endorsement from the financial elite in favor of Bitcoin. And we know this time that the price is being driven both by institutions and retail at the same time now.”
What Are Critical Technical Levels To Keep An Eye On?
Base on information from researchers at Whalemap which is a data analytics platform that tracks Bitcoin whales and high-net-worth investors, there are two critical levels for bitcoin in the short term. Provided that bitcoin remains above the $38,719 and $38,700 levels, which are the two major whale cluster areas, researchers stated that the bull trend of bitcoin remains intact.
Whale clusters form whenever the whales accumulate bitcoin at a particular price point and insist on not moving their holdings afterward. In theory, clusters are perfect support zones since whales would seek to accumulate more levels that they previously acquired bitcoin at in the case that the price of bitcoin drops. These analysts and researchers noted:
“Support at $39,719, invalidation below $38,700. The gap in supports between $39,719 and $32,180 so consolidating in the bear zone could bring us down to $32k.”
Bitcoin’s price dropped to as low as $38,700, on January 9 but managed to recover strongly at this support level. This scenario shows that some of the whales are accumulating at this zone, protecting it as a short term support zone to ensure that the bitcoin rally keeps moving.
Nonetheless, the CEO of Real Vision Group, Raoul Pal, warned of the “New Year Head Fake.” According to him, may hedge funds start to consider different risk-on assets at the start of the year.
Then, whenever many investors buy into the market, it seems to correct by the end of the first quarter. In the case that the head fake phenomenon coincides with a strengthening dollar, Pal believes that he might be tempted to place the S&P 500 puts. Looking at the options market, puts are short contracts that enable investors to bet against an asset or an index.
Since bitcoin and gold appear to move together, a rising dollar may negatively affect both of these assets. Thus, a New Year head fake may result in corrections in both the gold and bitcoin markets.
Whether the correction would come in brutal as the March 2020 crash or not, the current conditions in the market remain uncertain. But since bitcoin is overbought on the higher time frames, like the weekly and monthly charts, the probability of a deep correction remains nonetheless.