The central theses
- Bitcoin is flashing several bearish signals, indicating that its uptrend has run out.
- Ethereum whales are starting to pull their money from the market, but prices remain above stable support.
- It will take tremendous buying pressure to invalidate the bearish outlook for BTC and ETH based on transaction history.
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Bitcoin appears to have entered a new period of correction that is likely to bring Ethereum to a halt.
Bitcoin’s uptrend is set to reverse
The MRT indicator supports the thesis that Bitcoin is pegged for a steep correction.
The technical index presented sell signals in the form of red candles on BTC’s 1-month, 1-week and 3-day charts. Although some of these bearish formations were developed a few trading sessions ago, the near-term future still does not look bright for the bulls.
Another surge in sell orders around the current price level could cause Bitcoin to enter a one to four month correction period before resuming the uptrend.
The indicator Entity-Adjusted Spent Output Profit Ratio (a-SOPR) gives credibility to the bearish outlook. This fundamental metric, which represents the win rate of BTC tokens moving in the chain, recently hit its highest value ever recorded.
With the a-SOPR surpassing the 1.24 mark while Bitcoin hit a new all-time high of $ 42,000, those prices were too attractive to allow investors to wait longer before taking profits.
If this on-chain ad proves to be as accurate as it was in the past when it expected the market peak in April 2013, December 2013 and December 2017, Bitcoin could result in a devastating retracement.
Some whales (high net worth traders) have already started making profits. In fact, the number of addresses with more than 1,000 BTC has dropped more than 0.3% since Jan 24. About seven whales left the network in that short period of time, adding pressure on Bitcoin.
The sudden decline was substantial considering these big investors hold more than $ 300 million worth of BTC. First and foremost, it shows the belief of wealthy individuals that there is more room for price reductions.
If the selling frenzy continues at the current rate, Bitcoin could push for lower lows despite its ongoing consolidation period.
IntoTheBlock’s IOMAP (In / Out of the Money Around Price) model does not show any significant demand walls for Bitcoin that could prevent a further decline. Based on this on-chain metric, the only significant area of interest is between $ 28,550 and $ 29,430. Around 160,000 had previously bought almost 150,000 BTC here.
Such a weak support barrier may have the ability to temporarily absorb some of the selling pressure. But if Bitcoin can get past that hurdle, it would likely drop to $ 23,000.
The IOMAP cohorts also show that Bitcoin faces strong resistance. Nearly 800,000 addresses bought roughly 300,000 BTC between $ 31,230 and $ 32,150. This crucial supply barrier suggests that bulls will struggle to push prices higher.
And even if it does, the $ 35,000 level is stacked with more than 500,000 addresses currently underwater.
Ethereum can’t get back $ 1,300
The MRT index predicts that Ethereum’s uptrend is almost exhausted. The index is currently flashing a warning sign on the weekly chart. Although the real bearish pattern is expected to develop within the next weekly trading session, this can be seen as a reason to stay away from long trades until proven otherwise.
A look at Ether’s weekly chart reveals that the MRI setup was incredibly accurate to anticipate local spikes in the altcoin trend. The five sell signals that the indicator has presented on the ETH weekly chart since 2020 have been validated, which led to significant retracements.
Hence, this pessimistic forecast needs to be taken into account despite the historic moment the cryptocurrency market is experiencing.
It is worth noting that the number of Ethereum whales, raised with millions of dollars at ETH, has significantly reduced its population over the past week.
Since Ethereum first rose to $ 1,440 on January 20, the number of addresses with 100,000 to 1 million ETH has decreased 1.90% (a loss of 3 out of 162 whales).
Such a downturn in the number of major investors behind Ether may seem insignificant. When you consider these whales hold between $ 130 billion and $ 1.3 billion in ether, the sudden surge in selling pressure could mean billions of dollars.
The bearish thesis applies to Ethereum’s network growth.
Since January 7th, the number of new daily ETH addresses has steadily decreased. At that time around 150,000 addresses joined the network. 120,000 addresses are currently being created every day, a decrease of 20%.
The downward trend in network growth is a red flag for price growth in the near future. Typically, a continued decline in network growth is a leading indicator of a deterioration in prices. The lack of newly created addresses tends to have an impact on the regular inflow and outflow of tokens in the network and thus on liquidity.
The transaction history shows that Ethereum is sitting on stable support despite the increasing bearish signals.
Based on IntoTheBlock’s IOMAP, about 1.30 million addresses had previously bought nearly 9.60 million ETH between $ 1,120 and $ 1,230. Just a daily candlestick near this demand wall will serve as confirmation of the pessimistic outlook.
Despite the dire worst-case scenario, the unpredictability of the cryptocurrency market suggests that the optimistic view cannot be ruled out.
The IOMAP cohorts model shows that Ethereum faces strong resistance at USD 1,300. Around 340,000 addresses hold 6.90 million ETH at this price level, which means that enormous buying pressure is required to raise prices.
The cryptocurrency market is advancing
On-chain data shows that the Bitcoin and Ethereum weighted social sentiment on Twitter has declined significantly over the past month. Taking a dissenting approach, the fact that the crowd is quite pessimistic about these cryptocurrencies could be seen as a positive sign.
Historically, prices tend to recover when social perception is low. However, should that happen, the question arises how much BTC and ETH can rebound before validating the bearish scenario.
One of the main resistance barriers to Bitcoin is at $ 35,000. If the most recently observed downtrend were to be reversed, this hurdle would validate or reject further upward price movements.
The Ethereum, on the other hand, is under a significant supply wall. When looking at the nearly 900,000 addresses that have purchased over 11.60 million ethers between $ 1,300 and $ 1,490, just a candle holder near that area can invalidate the bearish thesis.
Disclosure: At the time of writing, this author owned Bitcoin and Ethereum.
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