The Bitcoin price (BTC) hit $ 19,400 in the past 24 hours, which has served as a critical resistance level since early December. However, indicators on the chain show that the dominant cryptocurrency could stagnate or consolidate until early 2021. While BTC is nearing its all-time high of around USD 20,000, there are compelling reasons to expect more sideways action.
On-chain analysts primarily examine two indicators to gauge the sentiment of a sustained rally: the spent output-earnings ratio, or SOPR, and the long-term holder MVRV. The SOPR indicator shows whether short-term holders are selling at a profit or loss. If the SOPR increases, it means that investors are selling at a profit, which typically means there is room for a small correction. But if the SOPR falls, it means that retail investors are likely to be shaken and a trend reversal upwards is likely.
The Long-Term Holder MVRV is an indicator that checks whether Bitcoin is overvalued or undervalued. The MVRV divides the price at which investors buy Bitcoin by the current market capitalization. This allows the indicator to measure whether investors are collecting BTC at an abnormally high price, causing the rally to overheat. A rally becomes untenable if MVRV exceeds 20.
SOPR and MVRV in action
Bitcoin is currently in an ideal position, where the SOPR indicator indicates the likelihood of further profit taking, while the MVRV indicates a long-term rally. This trend is positive for BTC as it shows that the overall upward trend would likely be intact even if a correction or consolidation phase occurs in the short term.
Willy Woo, an on-chain analyst and the creator of Woobull.com, said the SOPR has room to reset. Based on historical cycles, Woo noted that it could last until January. Therefore, Bitcoin’s likelihood of consolidating or stagnating for an extended period of time, at least in the short term, remains high. While this does not mean that BTC would undergo a significant correction, it could result in lower volatility and a more conservative price trend in the short term. Woo explained:
“Once SOPR starts to decline, profit taking leads to profit taking. We are waiting for all profitable investors to sell to complete their sale. When this happens, moving coins have no profit, SOPR goes to 1.0 and we can move forward. ETA January maybe. “
A positive factor that could offset a potential SOPR-induced sell-off in the short to medium term is the Long-Term Holder MVRV. Glassnode analysts explained that the MVRV is a long way from the danger zone, which previously marked local peaks. For example, when Bitcoin hit a record high in December 2017, the Long-Term Holder MVRV surpassed 20. In contrast, this statistic is currently around 3.
Both SOPR and MVRV suggest that Bitcoin is still in the early stages of its bull cycle. SOPR is significantly lower than during the 2017 peak, comparable to MVRV. It ties into the story of a post-halving cycle, where Bitcoin tends to peak 12 to 15 months after halving the block reward. If a similar cycle to the last halving in mid-2016 repeats, BTC could peak in mid-2021.
Glassnode analysts explained that the MVRV ratio is currently extremely bullish, adding, “When LTH-MVRV hits the red zone (above 20), it usually indicates a global peak. But as we can see from the chart below, Bitcoin’s LTH-MVRV is still very far from the red zone. “
If $ 20,000 breaks, a bigger rally can begin
However, Bitcoin exceeding $ 20,000 is a short-term possibility. There are mixed opinions on what comes next after BTC cleanly broke its record. Some believe there could be a blow-off peak in the $ 20,000 to $ 21,000 range when the euphoria peaks. Others say retailers’ interest in Bitcoin can begin.
There are two main reasons why mainstream interest in Bitcoin would soar after BTC ever hit a new record. First, many retail investors lost large sums of capital in 2017, buying nearly $ 20,000. As such, the all-time high remains an obstacle for many investors. Second, there is no historical cap for BTC above USD 20,000, so the price discovery period is likely to begin.
A pseudonymous technical analyst known as ‘Crypto Monk’ said a $ 20,000 break presents the “maximum pain scenario”: “All those folks who could have jumped below $ 10k but decided to fit by targeting crazy low prices are now hoping for a massive setback to get a chance. “
Eric Thies, a cryptocurrency trader, told Cointelegraph that he expects Bitcoin to break $ 20,000. Thies said Bitcoin was likely to see a renewed rally in January 2021 that would continue the ongoing upward trend after some consolidation:
“I would expect that with recent news on bank interest rates and continued retail growth, Bitcoin will soon be in the $ 20,000 zones and beyond. There is no doubt that we are seeing a continuation of this upward trend and the birth of a new bull run. The best option for submissions may now be in the $ 19,000 range, or if we drop out from here, the submissions will quickly fill $ 15,000 during these consolidation efforts. In January 2021 we will see new highs for Bitcoin. “
In addition to Bitcoin’s historical significance of over $ 20,000, data on the chain suggests that the number of BTC holders is on the rise overall. On December 10, the number of Bitcoin addresses with a balance reached 33.22 million, according to to researchers at IntoTheBlock. This is a record high and it suggests that retail interest in BTC is on the rise.
On top of the strong fundamentals supporting the ongoing rally, institutional demand for Bitcoin continues to grow. On December 15, Barry Silbert, Grayscale CEO, said the company raised $ 13 billion in assets under management. This indicates that accredited investors in the United States are increasingly interested in an exchange-traded fund alternative.
Sustained institutional demand for Bitcoin has been critical to the recent uptrend as it has made traders cautious about net shorting BTC. Bitcoin price has been at risk of major corrections several times over the past week, most notably the threat of a larger pullback to the USD 16,000 macro support area as the price declined below USD 18,000.
Still, traders seem reluctant to short Bitcoin due to the unpredictability of institutions accumulating BTC. A pseudonymous trader known as “Bitcoin Jack” said that he doesn’t want to bet against the billionaires, adding, “A cash position is the moderate approach between risk mitigation downside and being inflated upwards / downwards. The reality is I don’t know what will happen from here. Large flows of money are coming into Bitcoin. “