VYSYN VENTURES Weekly Insights #29
Bitcoin market conditions have been extremely bullish since the BTC price recorded a ~7.3% appreciation on the 21st of October. The bullish momentum kicked into a higher gear in November as price recorded a new all-time high on the final day of November.
What started off a price rise driven by spot market demand eventually attracted speculators in the derivatives market. Bitcoin price has since recorded several declines from near-record highs.
With price currently trading close to the all-time highs, is it destined to surpass former highs and claim a firm foothold in the $20k price range? Or will another price drop ensue? In the latest VYSYN VENTURES release, we analyse how the market unfolded from August until now and we consider how price might move from here.
How Bitcoin Reached All-Time Highs?
The above chart summarizes how Bitcoin price rose to break all-time highs at the end of November. At the end of August,, buyers became exhausted after several attempts to surpass $12k.
Throughout August, the derivatives market played a significant role in the price movements as perpetual futures contracts traded at a premium to spot market prices. A market controlled by derivatives speculators is more susceptible to downside movements as these players employ high degrees of leverage.
After several unsuccessful attempts to maintain values above $12k, Bitcoin started September with a two-day 15% price drop. This price drop laid the foundation for healthier market dynamics which would eventually lead to price hitting all-time highs.
The price drop sparked mass liquidations in the derivatives market as those that were leveraged long were wiped out. Bitcoin price traded in a tight range throughout September and spot market prices began to trade at a premium to derivatives.
Healthy spot market demand initiated bullish movements in October with price firmly surpassing $12k on the 21st of October. Bitcoin price continued its bullish trajectory towards the $14k level.
$14k was an extremely important market level as it was the high formed in Q2 2019. Surpassing this level would drastically increase the odds that the price of Bitcoin could continue its rise to $20k.
Although Bitcoin price surpassed $14k on the 3rd and 4th of November, it would not be until the 5th that price firmly passed the pivotal level. A 10% daily price increase on the 5th of November brought price above the level and completely changed market dynamics.
Bullish expectations surrounding Bitcoin increased and derivative speculators naturally returned with their leveraged positions. This was immediately noticeable from the premium returning in the perpetual derivatives market.
Bitcoin price would continue towards record highs but volatile conditions would follow. The first attempt at surpassing record highs was followed by a two-day 10% decline.
Bitcoin eventually hit all-time highs on the 30th of November but another pullback followed. At the time of writing, the price has been constantly swapping back and forth between above and below $19k.
Whether price will return to record highs from here is a matter of debate. A more significant pullback may also be in store. Here’s what the current market dynamics suggest.
Bullish Case for Bitcoin
Sentiment indicators suggest that market participants are expecting further price rises. The Crypto Greed and Fear Index – a sentiment indicator that analyzes various sources – is showing an all-time high for investor bullishness.
Institutional investors have also been piling into Bitcoin. After MicroStrategy led the way with their $425 million BTC purchase, others have followed. The latest institution that has been eyeing up Bitcoin is a Guggenheim fund. The $5.3 billion fund has reserved the right to put up to 10% of its assets into Grayscale’s Bitcoin trust.
Renowned investors like Stanley Druckenmiller and Bill Miller have also voiced their support for the asset which further strengthened the bullish narrative. Investment bank analysts have even been putting in price predictions. A Citibank senior analyst forecasted that the BTC price could surpass $300k by December 2021.
Short-Term Bearish Case for Bitcoin
On the other hand, there is also the possibility that a significant pullback may be in store before price firmly positions itself above $20k. Similar to August, derivatives have played a more significant role in price movements over the past month.
Heightened derivatives activity makes the market more susceptible to declines as volatile conditions can liquidate leveraged longs and put further downward pressure on price. The 8-hr price chart has also been shaping into a more bearish formation with a sequence of lower lows and lower highs.
Moreover, volume has been lower than its 180-day moving average. This could suggest that buyers are being exhausted and that a significant pullback is needed for price to reach new echelons.
Bitcoin is Undeniably Bullish
While the BTC price chart suggests that a pullback may be due in the short-term, Bitcoin market dynamics have been undeniably bullish over the past month. As institutions and renowned investors take notice of the asset, a monstrous pool of capital may be waiting on the sidelines.
If such capital finds its way into Bitcoin, upside price movements will need to occur to facilitate the greater demand. In the near-term, speculators should be cautious about the heightened activity of derivatives and the lower volume levels.
If a substantial pullback does occur, significant demand-side pressure would be expected above $14k. While the pullback is a possibility, the extremely bullish sentiment regarding Bitcoin indicates that it’s only a matter of time before the asset positions itself firmly above $20k.