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On-chain data signals increasing Bitcoin activity — But there’s a catch

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According to CryptoQuant CEO Ki Young-Ju, over-the-counter (OTC) Bitcoin (BTC) deals might be occurring in a way that is similar to the pattern seen in February 2019. According to the on-chain analyst, this is historically a bullish sign but Ki Young-Ju cautious that the pattern is not ‘absolute’ and should not be relied on in isolation.

Bitcoin transferred on the blockchain network hits a yearly high. Source: CryptoQuant

Ki also noted that the number of Bitcoin transfers achieved a new yearly high and that these transactions didn’t come from exchanges. Based on two on-chain metrics, he explained it could be a resurgence of OTC volume. He said:

“The number of BTC transferred hits the year-high, and those TXs are not from exchanges. Fund Flow Ratio of all exchanges hits the year-low. Something’s happening. Possibly OTC deals. This also happened in Feb 2019, when OTC volume was skyrocketed. I think this is a strong bullish signal.”

High net-worth individual buyers and miners often buy or sell Bitcoin in the OTC market. This allows BTC to exchange hands without placing significant pressure on the exchange market.

There is a catch to the data

Rafael Schultze-Kraft, the CTO of Glassnode, said the increase in volume is not BTC changing hands. Instead, the analyst said that the volume is flat and it represents “change BTC.” He wrote:

“Bitcoin on-chain volume is NOT increasing or hitting any highs. Even by applying the most basic change-adjustments uncovers that the increase in volume is just “obvious change” moving back to the sender. This is not $BTC changing hands, and not real economic throughput… Just wanted to point out that this is not the case, volume is in fact flat – these are just huge amounts of change BTC.”

Rather than OTC deals, it could represent internal transfers or other types of internal wallet movements. In that case, it would not necessarily be a bullish trend for Bitcoin in the near term.

Change-adjusted daily transfer volume shows flat volume. Source: Glassnode

Change-adjusted daily transfer volume shows flat volume. Source: Glassnode

In response, Ki explained that the trends still seem like OTC deals. He referred to the spikes in transaction volume in February 2019. After the two peaks in volume, Bitcoin eventually recovered strongly from the $4,000 area. Ki added:

“The point is just the non-exchange / non-miner entities are moving their funds by evoking multiple transactions, OTC tx is just one of the possibilities.”

What does it mean for Bitcoin?

If the spikes in Bitcoin volume are OTC deals, then it is an optimistic trend that indicates the possible start of an accumulation phase.

Since miners tend to sell BTC in the OTC market, many OTC deals involve miners selling BTC and whales buying the mined BTC. Such a cycle reduces the amount of BTC that would otherwise be sold on exchanges and also decreases selling pressure.

But if the rising transaction activity does not pertain to OTC deals, then it is most likely a non-event for Bitcoin.





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3 reasons why Bitcoin price has not been able to rally back above $40K

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The ongoing story for the past couple of months in the cryptocurrency market has been confusion on whether Bitcoin (BTC) is destined for another leg down or is finally ready to break out toward new highs.

Bitcoin’s price history and data from previous corrections suggest that the current struggles for the top cryptocurrency could persist for a little bit longer due to the strengthening dollar, the possibility of decreasing economic stimulus and a slew of technical factors connected to Bitcoin’s price action.

A strong dollar threatens Bitcoin’s recovery

According to data from Delphi Digital, one of the biggest factors placing strain on risk assets around the globe is the strengthening U.S. dollar which appears to be attempting a trend reversal after falling below 90 in late May.

DXY 1-day chart. Source: TradingView

Rising dollar strength put a halt to the year-long uptrend in the 10-year US Treasury yield which is also a reflection that the economic expansions seen in the first half of 2021 are beginning to lose steam and there is a threat that a new wave of Covid-19 infections threatening the global economic recovery.

Fractals and the Death Cross suggest the correction is not over yet

The short-term outlook for Bitcoin remains bearish as previous instances of the “Death Cross,” which appeared on BTC’s chart in late June, have been followed by a corrective period that can last for nearly a year.

Bearish crossover of the 50 day and 200-day MA. Source: Delphi Digital

According to the analysts at Delphi Digital, the 12-month moving average is being tested as support, and a dip below this level would signal further downside for BTC price.

Bitcoin price testing the12-month moving average. Source: Delphi Digital

The 12-month moving average has been a key support level for Bitcoin historically, so how the price performs near this level could dictate whether the current uptrend remains intact.

Related: El Salvadorians take to the streets to protest Bitcoin law

Overall, caution is warranted for traders because low volumes have historically led to higher volatility when fewer open bids can lead to rapid price fluctuations.

As explained by Kevin Kelly, a certified financial analyst at Delphi Digital, “the short-term outlook turns quite a bit more bearish if and when we break those key levels” near $30,000.

Kelly said:

“I don’t necessarily think that we will see as nearly as significant of a drawdown as we did in say, post-December 2017, early 2018, and into the end of that year. But I do think, just given the structure of the market, that we could potentially be in for a bit more short-term volatility and potentially some more headwinds here, in the near term.”

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.