Just as Bitcoin surged slightly above $45,000 on Friday, recycled news emerged of the Chinese central bank’s pledge to ban cryptocurrency trading for Chinese citizens, liquidating more than $600 million of derivatives positions at the time of writing.
It is important to remember that large liquidations tend to trigger a series of forced sell orders, which leads to a near-term imbalance between supply and demand. In these events, supply outweighs demand, and prices fall until the next big supply (supply) is reached.
Despite the volatility in the near term, the overall trend in fundamentals and on-chain metrics remains strongly bullish with long-term holders and miners continuing. In turn, weak hands along with “small” coins continue to cause panic selling. Just like yesterday’s pullbacks.
China expelled FUD weak hands
The recent Chinese FUD decision to ban cryptocurrency trading appears to be old news published on September 3, 2021. Considering the $4 billion liquidation, which caused an intraday drop of 20% on September 7, 2021, the day El Salvador adopted Bitcoin as legal currency. The news is already priced.
Wave 2: Bitcoin Price Trying to Find a Bottom
The recent volatility and massive liquidation managed to push BTC to a weekly low of $39.5K on Tuesday, coinciding with the critical Fibonacci retracement level. So far, the technical structure indicates that the decline from $52.9K to $39.5K is a corrective wave of wave 2 (according to Elliott waves).
According to the Elliott wave structure, corrective waves follow the movement of 3 descending waves. Technical analysts refer to this as the ABC corrective wave, where A is the initial leg down, B is an impulse, and then C is the final leg down.
In the next short term, Bitcoin price needs to maintain the C wave low at $39.5K. So far, BTC has pushed higher and bottomed at $40.7K, which is a confluent level of technical support, which includes the lower Bollinger Bands on the daily chart.
If BTC can successfully sustain the higher low at $40.7K and start making higher highs above $45.2K, it will increase the probability of wave 2 completion.
Looking ahead, the technical structure indicates that the completion of wave 2 will start a larger wave 3, which tends to be the wave that pushes the price significantly higher. This is highly dependent on BTC’s ability to protect the higher low at $40.7K and the week low at $39.5K.
Long-term technical structure contract
Although the near term chart looks bearish, the longer term chart is still bullish, especially with the larger structure holding: BTC managed to hold support at the top of the $30K-$40K trading range in June It has been recording a higher low since then the bottom was at $29.2K in July.
Extended accumulator Wyckoff Phase D
The Wyckoff buildup appears to extend phase D, which is more of a consolidation phase, before phase E as the price is pushed significantly higher. Multiple rounds of liquidation and a suspiciously timed FUD have pushed Bitcoin below $50K.
Volume increased as BTC tested the key technical levels of support in the mid-$40K, indicating that larger buyers are stepping in. Despite the deeper pullback than expected, bitcoin still made a higher bottom (on lower time frames). To maintain a larger technical structure, BTC needs to hold support between $41.3K to $40K on a weekly close basis.
The trend on the chain is still bullish
The majority of recent selling has come from leveraged liquidations and panic selling from younger coins. 3-month-old coins and smaller coins were the primary sellers. In general, the old coins continue to build up, showing no interest in selling the pullback.
Since BTC topped $52.9K, miners’ reserves have been slowly trending downward, dropping by around 6,600 BTC. This may seem like a large amount of BTC, but that is only 6,600 BTC out of the miner’s total reserves of 1,850,000 BTC.
Bitcoin miner reserves continue to remain above the starting balance in January 2021, which shows that BTC miners are selling small amounts of BTC periodically, but the overall trend is not showing significant selling pressure compared to a bear market.
Average coin life meter by CryptoQuant continues to bullish despite pulling back, strongly confirming that long-term coin holders continue to accumulate and hold while weak hands sell out.
Volatility throughout 2021, multiple liquidation events, consistent FUD, and deep pullbacks did not significantly impact long-term stockholders. This refers to HODLers who have been holding BTC for years are now comfortable with their position Even with violent twists and turns and qualifying.
The type of behavior described, which can be seen on the chain, strongly suggests that long-term holders of coins and entities that hold storied coins have a strong conviction in Bitcoin, refusing to sell on a significant pullback. As these entities continue to accumulate, fewer BTC will be available for sale on exchanges, further depleting the deep supply.
This can be seen in spot exchange reserves, which continues to hit new multi-year lows, even with recent volatility. The exchange’s spot reserves have fallen by 12,500 BTC since BTC crossed the $52.9K level and started to decline. Based on this data, it is clear that investors are buying the dip and withdrawing BTC from the exchange.
Critical Weekly Closing Coming Soon
It is important to see BTC surviving Above 41.3 thousand dollars and 40 thousand dollars for the weekly closing. In the near term, we need to see $40.7K holding to form a higher bottom, as the next step to complete the wave 2 pullback.
It is also possible to see more liquidations, which are likely to send BTC towards the lows of $39.5K. A break below $39.5K could send BTC to the next important support levels at $38.6K, $38.3K and $37.3K.
This scenario would be less ideal for the bulls, especially as Bitcoin approaches a critical weekly close. If there is a liquidation wick that reaches above $30K, it is critical to see the wick rise above $40K to maintain a larger technical structure.
Conclusion: The near-term charts look cautious, but the long-term charts and the general trend in fundamentals and on-chain are still very bullish as long-term coin holders, miners, and crypto-holding entities are showing no signs of selling. BTC still looks well positioned to make a solid rally to all-time highs later this year.
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Cryptocurrency charts by TradingView.