Since the halving, bitcoin’s price has traded mostly between $9,000 and $10,000, compared to the red hot DeFi and “alt” coins that regularly post triple digit returns. In recent weeks, bitcoin’s range has tightened with many analysts noting a potentially violent price breakout on the horizon. However, there is no consensus on which direction the breakout will assume.
Charles Edwards, Founder of Capriole Investments, suggests bitcoin’s fundamentals have never looked better. “I have a very bullish outlook in the mid to long term. For example, energy value is at all time highs, suggesting BTC is more valuable than ever before. When this is increasing, it is historically very bullish.” This longer term indicator may suggest that a breakout leans towards the bulls.
Interestingly, bitcoin’s tightening volatility is not a new phenomenon, and occurred from late-September to early-November 2018, which ultimately broke out to the downside, falling from $6,500 to $3,400. One quantitative risk indicator value has been dropping quickly coupled with compressing price volatility. The only other time this dynamic unfolded was November 2018, which could suggest that a stark price fall is on the horizon. The caveat is that this signal has only occurred once before, thus suffers from a small sample size.
Additionally, the anonymous Founder of Decentrader, Filb, notes “derivatives open interest (OI) increasing as we have consolidated through this period by about 45%, is a similar amount seen before the fall in Q3 last year, to around 8k. It appears OI has been net increasing on dumps. This implies that…the market needs a catalyst to clear this OI out.”
Furthermore, Filb adds, “alts have continued their downward trajectory over the past few days, which are probably quite important as to what happens next; particularly if they start dumping and the money flowing back into bitcoin isn’t doing anything. Something to pay attention to for sure.”
Lastly, Bo Collins, CEO of San Juan Mercantile Bank and Trust, notes bitcoin CME futures volume growth from 2019 to 2020 is only approximately +10%, at the time of writing. This number becomes weaker when considering yearly foreign exchange (FX) futures volume growth can regularly eclipse +30%, e.g. 2018. Tepid bitcoin futures growth calls into question the institutional adoption narrative in some respects, and may imply less buying demand than originally suspected.
However, as shown by Glassnode.io, the amount of bitcoin held on centralized exchanges has dropped considerably since March, which seems bullish for bitcoin as spot investors appear to be holding for the long-term rather than short-term trading.