With Bitcoin breaking resistance after resistance, at some point reality is likely to set in and when it does, will the price hold, surge, or breakdown? At press time Bitcoin is flirting with the $12,000 level for the second time in 10 days, and the market is growing anxious if past events will repeat itself, but measuring the supply against the demand suggests that the growth in the latter can help the price push higher.
On August 2, following two weeks of consistent price hikes, Bitcoin reached the $12,000 mark for the first time since June 2019. However, within the same hour, a wave of sell-orders were likely triggered which dropped the price down below $11,000, culminating in an 8 percent drop. In the week following its drop, the price recovered, and during this recovery fearful hodlers depleted their Bitcoin accounts with over 231,000 Bitcoins being liquidated according to a report by Chainalysis.
Speaking to AMBCrypto, the Chief Economist of Chainalysis Philip Gradwell stated that while at the face of it the large sell order looks like a dump, measured against the demand for it suggests another picture. He stated that there has been a recent increase in assets held on exchanges which indicates that “more market participants want to sell than to buy.”
If these sellers compile their sell-orders at a particular price point, within the same period, once the price hits that point, a large number of orders are executed and the price drops. Further, if these sell orders are maker orders below taker orders, there is a pull effect on the market [or on the specific exchange], and the price of the cryptocurrency, in this case, Bitcoin, drops. This explains the August 2 drop in a nutshell.
While this is common in markets, the events of August 2 and following it suggests that while supply is increasing with traders looking to sell their holdings, a case can be made for the growing demand. Gradwell stated that while “extra supply should create a downward pressure on the price,” as the inflows into exchanges have increased, the price increase has slowed as some traders look at sell off their Bitcoin at a profit, and other are willing to wait to accumulate higher gains.
Either way, since the sellers have managed to find buyers in the market, and the fact that some can wait for buyers at a higher price point suggests growing demand amid a price increase. Gradwell stated,
“The fact that price has continued to rise is a sign that there is significant demand at the moment, to absorb that extra supply.”
Bitcoin’s price is rising, but it will be tested at every new level, with more sellers looking to offload their cryptos at a profit. But even with the Bitcoin sold, there are buyers, indicating that the price still has a long way to go before the demand dies out.
