In our latest Bitcoin (BTC-USD) market review, we discussed the potential for a reflective bearish rally. This rally really started on March 13, and now investors want to know how much Bitcoin can go up.
Why is Bitcoin rising?
To analyze the recent Bitcoin price trend, there are three indicators that I am watching closely. That includes:
- BTC exchange balances
- Glassnode – Accumulation Trend Score
- BTC supply over 1 year old
Throughout 2022, Bitcoin’s price remained capped and volatile due to a general lack of demand. However, 2 weeks ago something in the air changed and the onchain indicators flashed optimistic since then.
Currently, the demand for Bitcoin appears to have increased dramatically due to two reasons:
- The Fed’s 25bp rate hike removed uncertainty from the market.
- There is growing speculation about an upcoming US Bitcoin ETF.
Furthermore, the Terra Luna Foundation (LUNA-USD) has recently started buying Bitcoin at over $100 million in daily purchases. All this spot demand has driven the price of Bitcoin higher since mid-March.
One of the most fundamental ways to analyze demand for Bitcoin is by tracking exchange balances. As we can see, BTC exchange balances have recently started to drop sharply:
These outflows caused the foreign exchange balance to fall below its one-year consolidation range. if this is the start of a new downtrend, so the price can be expected to rise further.
Accumulation trend score
Currency balances clearly show that Bitcoin scarcity is increasing. But who is buying?
We can map institutional demand for Bitcoin via Glassnode’s Accumulation Trend Score. This score reflects the relative size of entities that are actively accumulating (green) vs. distributing (Red):
According to Glassnode:
A score closer to 1 reflects that, in the last month, major players (or a large part of the network) have been accumulating coins.
A score closer to 0 reflects that, in the last month, major players did not accumulate coins or sell them.
As we can see in the chart above, most of Bitcoin’s circulating supply has become accumulated, instead of sold. Typically, Bitcoin accumulation periods last a few months and occur as a result of big players ‘buying the dip’ or ‘anticipating a rally’. The chart below identifies all the ups and downs that have caused big Bitcoin holders to continue to buy binge:
Currently, it seems that institutions anticipating a parabolic price rally. Notably, the last time the Accumulation Trend Score flashed green While Bitcoin price simultaneously moved higher and took place between September and October 2020.
Coinciding with the data in the chart above, Coinshares reported last week that digital asset investment products have seen their biggest inflows since December 2021. In my understanding, institutions and sovereign wealth funds are likely buying BTC in preparation for the launch of a Bitcoin spot US ETF.
In fact, Galaxy Digital (OTCPK:BRPHF) CEO Mike Novogratz recently hinted that he believes a spot ETF could launch this year. Does he know something we don’t?
BTC supply over 1 year old
Finally, the percentage of Bitcoin supply that is older than 1 year also typically acts as a leading indicator for parabolic price rallies. This offer (BTC older than 1 year) is important because coins that reach this age are considered ‘less liquid’ or less likely to be sold. As we can see in the chart below, the last two times the 1+ year supply reached more than 60% of the circulating supply, this led to huge price increases:
All of this points to a bullish outlook for Bitcoin in the long term. Institutional demand is clearly present; however, impulse traders and retail investors have yet to get back into the cryptocurrency market.
To outline everything that has been covered:
- Bitcoin has been rapidly leaving exchanges since mid-March.
- Major players including institutions, sovereign wealth funds and the Terra Luna Foundation are buying up Bitcoin in large quantities.
- The supply of ‘long term’ or more than 1 year Bitcoin is increasing parabolically and has recently crossed the 60% mark for the third time.