Is Bitcoin Poised for Another Bull Run Post-Consolidation?

KEY TAKEAWAYS

  • BTC reserves across all major exchanges have fallen to a 21-month low, signaling a slightly distant bullish momentum
  • Bitcoin miners are less willing to sell in a period of strong rally
  • The robust DeFi economy may propel Ethereum utility to new heights, which could positively influence the price of ETH

Exchange Reserve 

According to Glassnode, BTC reserves across all major exchanges have fallen to a 21-month low. It started with the continuous decline following the peak on July 30, with the current balance falling by 0.16%, to 2,614,669 BTC on Tuesday, August 25. This is the lowest level since November 2018. 

A plunge in exchange reserves can be interpreted as a good sign because investors are moving their Bitcoins to external custody providers, rather than leaving them with exchanges to be traded. Investors usually only shift large volumes of their digital assets from external wallets to exchanges during times of market panic. A case in point: In the days leading up to the market crash on March 13, the exchange balance soared through the roof, culminating in a historic high on March 14. In contrast, the dip in exchange balance implies less selling pressure and can be interpreted as gearing up for a new bullish momentum. 

Source: Glassnode

August and September tend to be weaker months for BTC based on historical data. If seasonality is a contributing factor, we might not see a significant change until the end of September. So far, general market sentiment still points to “extreme greed”, albeit slightly toned down compared with previous weeks. This is possibly due to the bullish drive tiring out and BTC retreating to tight range trading. 

Source: Alternative

From Miner to Exchange 

The tendency to speculate further market movements is more pronounced among Bitcoin miners. After the brief increase in volume on August 14, mining outflows, despite minor fluctuations, have remained low, suggesting that miners are less willing to sell during a period of strong rally. 

Source: CryptoQuant

The Miners’ Position Index (MPI) draws a similar conclusion as the miners’ position has been consistently under two since the spike on June 23. Values below two indicate that most miners prefer holding their Bitcoins than selling. 

Source: CryptoQuant

Shortly after the transfer volume surge on August 14, the price of BTC successfully rallied to $12,470. However, key price indicators, including RSI, ADX, and MACD, exhibited subtle signs hinting at the eventual discontinuation of the bullish trend. The attempt at a bullish cross on August 18 irrevocably failed, and the much-anticipated bull flag formation was thrashed. The rally poised to overturn former resistance into support proved to be a fakeout. Currently, the price of Bitcoin slipped 3.8% from the previous 24 hours, and has fallen back into its comfort range between $11,000 and $11,900. 

Source: Bybit Insight

Consequently, the on-chain hash rate has been dropping daily since peaking on August 17. The continuous rainstorms in Sichuan have also aggravated the situation by knocking between 10% to 20% off the hash rates of four of the world’s largest mining pools.

Source: Bitcoin.com

DeFi Craze 

On the other hand, ETH has continued to grow in popularity dominating the smart contract platform amid the decentralized finance (DeFi) craze. Coincidentally, ETH has logged its best performance since 2017, trading at around the $400 mark. Percentage-wise, Ethereum has gained more than 200% year-to-date, comfortably outperforming BTC. The balance across all exchanges is trending up as investors tend to keep their ETH readily available for trading on exchanges. 

Source: Glassnode
Source: Glassnode

The total gas used on the Ethereum network hit an all-time high on August 23 and is expected to rise even higher. ETH Gas is the fee required to successfully conduct transactions or execute smart contracts on the network. The record amount of gas used signals greater Ethereum utility for DeFi-related activities. According to DeFi pulse, the amount of ETH locked in DeFi has surpassed 4.8 million.

The DeFi economy has grown massively this year, as the total value locked in DeFi is approaching $7 billion. Between dex platforms, derivatives, stablecoins, and lending, the boom of DeFi in 2020 Q3 has propelled the adoption of the Ethereum network to new heights. 

Source: DeFi Pulse

Currently, both BTC and ETH markets are dominated by holders, who are anticipating stronger bullish momentum in the long term. However, ETH’s active trading addresses have increased by 3.76% in the past 30 days, a sign that more spectators are leaning towards active trading. 

Source: Into the block

On the other hand, addresses actively trading BTC have decreased by 1.11% amid BTC’s two-week strong performance.

Source: Into the block

Overall, despite recent price slippage, market indicators suggest that both BTC and ETH are probably poised for another bull run, though we might still be a few weeks away from the charge.