Bitcoin (BTC) price saw a bullish turn of events yesterday as the price broke out to as high as $39,700 but it is still too early to determine whether the digital asset is ready to continue its uptrend.
What happened during the week?
The El Salvadorian Congress passed a bill that makes Bitcoin legal tender in the country for use in day-to-day transactions. This move was fostered by the President of El Salvador, Nayib Bukele who pointed out that Bitcoin helps bank the 70% of the population who do not have bank accounts and find it difficult to receive money from family members outside the country as 10% of the amount sent is lost to transaction charges. The President also announced the possibility of volcano-based mining for bitcoin miners who may be looking into moving their mining business into the country.
MicroStrategy CEO, Michael Saylor looks to be going all out on Bitcoin as he plans to raise 500 million to buy more Bitcoin holdings. The company already owns over 90,000 BTC and is looking to leverage more on the flagship cryptocurrency. Speculations have it that the company will begin purchasing its Bitcoin today.
Bitcoin, after 4 years finally gets an upgrade called “Taproot”. Taproot is focused on giving Bitcoin a new signature scheme known as Schnorr signatures. This upgrade to the Bitcoin code opens up new possibilities for privacy, multisignature wallets, security and scaling. After 90% of miners voted for the upgrade through “Speedy Trial”, the upgrade is expected to take full effect in November 2021.
Finally, the catalyst for the bull run yesterday is no other than the CEO of Tesla, Elon Musk, who denied claims that the company had sold its Bitcoin holdings and mentioned that if Bitcoin energy usage is renewable by about 50%, the company will continue to accept bitcoin as a means of payment for Tesla cars. He stated “This is inaccurate. Tesla only sold 10% of holdings to confirm BTC could be liquidated easily without moving the market. When there’s confirmation of reasonable (50%) clean energy usage by miners with positive future trend, Tesla will resume allowing Bitcoin transactions.”
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Even with the positive sentiments, the cryptocurrency market is still on edge after Bitcoin fell from its all-time high near $65,000 by almost 50% in a day. A market analysis from Delphi Digital identified a “major head and shoulders pattern” that could “spell more short-term pain if BTC dives below $30,000.”
On-Chain analyst data suggests uptrend
Now it’s time to review some key data points to gain a greater perspective on where Bitcoin price could go next.
A 50% decrease in price over the past two months may seem extreme to those unfamiliar with the volatility of the cryptocurrency market, but it comes as no surprise to the long-term hodlers (holders) who have seen multiple drawdowns of an even larger magnitude over the last decade. Data from Delphi Digital gives us a look into Bitcoin’s price drawdown from 52-week highs.
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As seen in the chart above, a drawdown of 70% or greater is not uncommon for BTC, especially following a significant run-up in price, hinting that the possibility for further decline is high as the market has been in the $30,000 range.
The rapidly falling prices sent new and old Bitcoin holders running for the sidelines, resulting in traders selling at a loss, according to SOPR (Spent Output Profit Ratio) data highlighted by cryptocurrency analyst, filbfilb sourced from Decentrader. The data indicates that average wallets are now selling at a profit again.
The Crypto Fear and Greed Index (CFGI) has also reached its lowest level since the March 2020 sell-off fostered by the Covid-19 pandemic. The data shows that high levels of fear are currently being experienced in the market with investors adopting a watch approach. This is also an opportunity for investors to “be greedy when others are fearful”, as Warren Buffet would say. The chart also gives credibility to the saying as it shows that buying during high fear moments tends to be a good entry-level point.
On-chain analysis from Decentrader also shows that an ‘oversold’ signal was recently triggered, “suggesting that BTC may soon be ready to turn around and move to the upside.”
The active addresses sentiment indicator compares the 28-day change in price, shown by the orange line, with the 28-day change in on-chain active addresses which is represented by the band of grey lines. The orange line moving from below the dotted green line back up into the active address change band is considered a bullish signal, and this most recently occurred on June 10, indicating the possibility of a turnaround in the market.
Bitcoin is currently trading at 39,500, up 12% for the day, as of the time of writing this report.