4 December 2020
The cryptocurrency market has shown some kind of volatility with Bitcoin (BTC) price retracing twice in the last two weeks after facing strong resistance at $20,000. After a major market crash on November 24, BTC crashed to $17,000.
However, it quickly recovered over the weekend after news surfaced that global investing giant Guggenheim Partners is planning to pump $500 million in Bitcoin through the Grayscale Bitcoin Trust (GBTC).
As Bitcoin flirts around the $19,000 levels, traders and analysts have spotted some key on-chain (i.e. on-chain) indicators that show the possible corrections in the short term and how high Bitcoin’s price can shoot in 2021.
Let’s take a look at some crucial on-chain data points. We will review what each metric means; however, we want you to feel completely comfortable with the overarching trend that’s communicated. If you are uncertain about an element in the analysis, reach out directly to Edmund McCormack ([email protected]). As a member, it’s our mission to provide a level of access and clarity to our team that is simply unparalleled elsewhere.
The first indicator that stands out is Spent Output Profit Ratio (SOPR), which is simply a way to determine whether investors are selling at a profit or loss based on the current price of Bitcoin. When the SOPR is high, BTC is technically at risk of correcting since traders tend to sell at a high price and book profits.
Currently, the SOPR indicator is at the levels that have historically led to Bitcoin price correction back in 2018 and 2019.
However, the supply of Bitcoin on the crypto exchanges has been on a constant decline throughout 2020. In fact, available Bitcoin on exchanges has reduced by 18%. The continuous drop on exchanges reduces the probability of sharp pullbacks.
With institutions buying in huge numbers in 2020, most of the Bitcoin has moved from the cryptocurrency exchanges to cold storage. By removing Bitcoin from circulation, the overall supply has experienced a squeeze.
As shown in the chart below, there is a “re-accumulation phase” occurring in the market (often referred to as “spot markets” compared to “futures markets”) which often signals that there are large institutions who are buying high volumes of commodities or shares over time. IN fact, the chart shows that the overall depletion of Bitcoin supply is ~2x longer and deeper than the last surge (or “bull run”) in Bitcoin price.
The result: Analysts across the financial world have raised their expectations for where Bitcoin’s price will be over the next 12 months, including Citibank’s analysts who predict Bitcoin could eclipse $318,000 by the end of 2021.
Ethereum (ETH) Continues to Move Around $600 Post The Ethereum 2.0 Beacon Chain Launch
Not be outdone by Bitcoin, Ethereum (ETH) has been showing similar price movements over the last two weeks. During the market correction on November 24, ETH price crashed below $500 levels; however, it has quickly recovered and is back above $600 with the official launch of Ethereum 2.0 on December 1st.
With the launch of ETH 2.0, a new feature is introduced (Beacon Chain) which will help shift the Ethereum blockchain from Proof-of-Work (PoW) to Proof-of-Stake. The goal with Proof-of-Stake is centered around increasing the speed, scale, and cost of transaction on the Ethereum blockchain, where individuals will put a specified amount of their ETH in a smart contract as collateral to support the accuracy of transaction verifications that they execute to earn a percentage of transaction fees.
As a myriad of financial institutions such as Visa and PayPal wade into the world of cryptocurrency, the improving network is striving to enhance lower cost, transparency, and increase transaction speed. Introducing sharding is going to be the next step in the roadmap to scalability, and this will break up the PoS blockchain into more manageable and smaller datasets. After achieving this, developers have a plan to go live with roll-ups which will enhance throughput for applications that are decentralized on the network.
With the target for Beacon Chain’s launch on December 1st, the deposit contract required 524,288 ETH to be “on hold” 7 days before the start date. However, the Ethereum community overwhelmingly participated and eclipsed the initial target by 350K+ ETH (or $212MM in valuation, at the $606 price per ETH on December 1st).
Through ETH 2.0, Ethereum will be more sustainable, secure, and scalable. It provides the foundation for the future evolution of decentralized finance, disruptive technology built on its distributed framework, and opportunities for investors to increase their portfolio’s value. In increasing the safety and scalability of the Ethereum blockchain, investors will closely watch how it increases developer activity and overall usage of the network.