Beware the Bitcoin Rally: Short Squeeze and Excitement Not Enough for Bull Cycle

The chart illustrating Bitcoin holdings on exchanges has displayed a consistent downtrend since its peak in June, persisting throughout the year. Nonetheless, when viewed alongside recent developments and past occasions when Bitcoin’s price surged, the decrease in supply seems relatively modest.

Starting from October 13, when the amount of Bitcoin on exchanges peaked at 2,056,000, it gradually decreased to 2,018,000 by October 19, indicating a relatively minor decline of just 38,000 BTC.

Notably, this decrease preceded the recent price surge. Interestingly, as the price began its ascent, the number of Bitcoins on exchanges began to rise once more. This trend implies that investors might be transferring their Bitcoin to exchanges, possibly with the intent to capitalize on the rising prices and secure their profits.

The growing deposits may indicate a willingness among some investors to sell, particularly if they anticipate a potential price correction following the parabolic increase.

Shifting our focus to the supply side, miners hold a central role. The Miner Position Index (MPI) offers valuable insights into their actions. Elevated MPI values signal substantial Bitcoin deposits by miners on exchanges, often signaling a potential intention to sell. By analyzing the MPI, we can assess whether miners aim to take advantage of current price levels or are maintaining their Bitcoin, anticipating further price appreciation.

In conclusion, while on-chain metrics offer valuable insights into market behavior, it’s essential to consider them alongside other indicators and the broader market sentiment to gain a comprehensive understanding of potential price movements.

A distinct upward trend becomes evident when smoothing the chart with a 7-day moving average, starting from September 9, with a temporary dip to $25,000. This upward trend persisted for the most part of the price rise from Monday, suggesting that miners have been exerting pressure on the price.

Distinguished crypto analyst Ali Martinez shared insights on X on potential future price targets for Bitcoin.

He highlighted a robust support region between $25,000 and $30,000, backed by the creation of a substantial number of UTXOs at that price range.

“These bars represent the quantity of existing bitcoins that last moved within the specified price bucket.”

He interprets this UTXO distribution as a support zone, indicating that investors who purchased at these levels are unlikely to sell below them, expecting higher prices. This is why he identifies the next resistance zone at approximately $38,440.

It’s worth noting that these tall bars could be misleading because they represent the quantity of UTXOs rather than the number of coins, i.e., volume.

The current path implies that a modest higher high may soon occur, signifying the culmination of this particular upward move. This will likely be followed by a retracement, indicating the end of wave 4, and another anticipated surge leading to wave 5.

The target for this surge could hover just below the $40,000 threshold, aligning with significant horizontal resistance, as emphasized by analyst Ali Martinez’s UTXO distribution resistance. However, considering that this may mark the final wave of a higher-degree trend originating on November 21, a more substantial downturn is on the horizon.

If this indeed marks the beginning of a new bull cycle after a prolonged period of declining prices, the next critical milestone would be establishing the initial higher low of the bull market. This is likely to take the form of an ABC correction, representing wave 2 of a higher degree. Ideally, this correction should remain above the $25,000 level.

Should the price approach the anticipated peak of around $40,000 and then experience a 38% decline, it could potentially shake the confidence of short-term investors, prompting a reassessment of their positions.

While the recent upswing in Bitcoin’s price is undoubtedly bullish, several factors must align before we can confidently proclaim the beginning of a new bull cycle. While catalysts like the anticipated Bitcoin ETF and the short-squeeze have played a role in the current rally, a genuine bull cycle for Bitcoin necessitates more enduring and foundational triggers.

One of the significant upcoming events is Bitcoin’s halving scheduled for next year. Historically, the market tends to price in the anticipation of halving, often resulting in an uptrend leading up to the event and sustaining momentum post-halving.

However, to genuinely confirm the start of a bull cycle, a mere price surge and temporary bullish sentiment won’t suffice. We need to witness the emergence of a sustained uptrend, marked by the establishment of a higher low, indicating that the market is creating new support levels.

Skeptics still exist, with some predicting Bitcoin’s potential drop below $15,000. Nevertheless, if Bitcoin can establish a higher low, it would not only shift the narrative but also potentially convert many bearish investors into bulls. Such a move would solidify the belief that Bitcoin found its bottom last November.