BTC recovers critical level after strong weekly close, next targets

September was a volatile month filled with liquidation events, risk disinformation, global risk divergence, monetary policy uncertainty, and a stronger dollar. However, Bitcoin managed to hold the larger technical structure at $40K while maintaining the upside in the on-chain metrics.

BTC showed tremendous strength last week by closing again above the ascending trend line at $44K, recovering $45.2K, the 200-day moving average, and printing a bullish engulfing candle. Bitcoin also managed to return to the green zone between $47.2K to $50.5K, an area that was a former support.

In the near term, it is important for BTC to establish support at $47.2K-$47K, as this level has a lot of supply according to the UTXO Realized Price Distribution scale. When the price is above this level, it acts as a support. So far, BTC has retested $47.2k several times and managed to hold support.

Elliott wave suggests that the pullback is completed in about wave 2

As we covered recently, the pullback from $52.9K to $39.5K followed a 3-wave descending corrective wave from ABC, which is typical during pullbacks after a 5-wave rally up. The bottoming process took some time as global stocks shied away from risk, but BTC showed strength by holding its deepest, higher low at $40.7K for an entire week before galloping higher.

The recent close above $45.2K further indicates that Bitcoin is in sub-wave 3 to the upside, which is part of the next five IM to the upside. In the near term, the bulls need to protect $47.2K as support and start pushing BTC above $48.8K, the near-term high and most importantly above $52.9K, the high from September. To confirm that the pullback to $39.5K was a bear trap, we need to see a Bitcoin price close above $52.9K for validation.

The larger wave structure indicates that the pullback from $64.8K to $30K was a larger wave 4 correction after the strong higher wave 3, sending BTC from $3.8K to $64.8K. Using this wave count, BTC appears to be in the early phase of the larger 5 wave to the upside, which could send BTC to new all-time highs.

Strongly bullish trend on the chain

While Bitcoin corrected and consolidated in the low $40K region with a very bearish trend, on-chain metrics continued to show that long-term holders of the coin held steady while the leverage was shed on derivatives and weak hands.

Even with a multi-week BTC correction, spot exchange reserves have fallen by more than 14,000 BTC, showing a strong build-up. Spot exchange reserves have been declining since July 26, 2021 as BTC continues to be collected and withdrawn from exchanges. This is a very bullish sign as the cryptocurrency is becoming scarcer in liquid form, making it difficult for large institutions to accumulate it without raising prices.

CryptoQuant’s mean life metric, which measures the trend of accumulation or distribution in long-term holders, continues to trend higher, indicating strong accumulation, which indicates a continuing bull market. Current conditions look very similar to the 2013 mid-cycle pullback where BTC has been consolidating for six months while the average currency continues to be bullish as long-term holders re-accumulate.

This period of consolidation led to the second half of a bull run where BTC made new all-time highs and went parabolic. This, of course, caused long-term coin holders and miners to distribute, causing the average life of the coin to decline, confirming the distribution trend. The current conditions show no signs of a long-term shareholder distribution, indicating that the second half of the 2021 bull market has just begun.

Miners’ reserves have remained flat slightly higher for the year, indicating that miners are not showing any interest in selling large amounts of bitcoin even with the extreme volatility caused by liquidation and FUD. Although miners recently sold a small amount of bitcoin relative to total holdings, it’s not close to the strong selling we’ve seen during bear markets when miners are under heavy pressure to mine profitably. In addition, the bitcoin hash rate has more than tripled since its lowest point in June, indicating that miners are reconnecting to the network after migration from China.

With current Bitcoin prices, miners are generally generating high profits, which incentivizes them to HODL rather than sell to cover operational costs. This is quite noticeable because the new supply of Bitcoin in the market is mostly held by miners. The majority of the current supply of Bitcoin is still owned by long-term contract holders and entities with little or no sale history, showing that the supply is becoming increasingly scarcer.

Risks to resume trade?

With a new week, market participants will be watching stocks and the dollar closely to see if risk returns to the market. The dollar appears to have reached the top recently, while the SPX has formed a double bottom that managed to hold the week’s lows from more than two weeks ago. With macro conditions still favoring riskier assets like rates at zero, trillions of cash, plenty of market fear, and no signs of euphoria when stocks hit all-time highs in weeks, it’s starting to look more likely the risk-on trade could be. Resuming in the coming weeks.

With Bitcoin outperforming stocks recently, a comeback could be a major tailwind for more upside. With a strong trend in fundamentals, technology, and metrics on-chain, it appears that the cryptocurrency is in a position to make a significant rally later this year. Bulls are slowly gaining control.