Traders Become Bullish On Bitcoin After Recent Sell-Off
Investors are turning bullish on Bitcoin and Ethereum again as crypto markets flat-line after a recent sell-off.
Monday, Bitcoin and Ethereum ended slightly in the red. While Bitcoin still showed some resistance at the psychologically-important $20,000-mark, according to Edward Moya, a senior market analyst with OANDA.
There was no sign of any further sell-off for the digital currency in sight.
“Ultimately, little has changed,” said Moya. “The cryptocurrency has been fluctuating around $20,000 for months.”
A recent alteration to Bitcoin’s algorithm has adjusted mining difficulty of new coins to a new high as a result of an overall increase in network hash power, said Glassnode, another research agency, in a note. Glassnode based analysis on a proprietary model it created mapping the digital currency.
Mining difficulty is a key metric in Bitcoin price discovery since the more costly that new coins are to mint for miners, the more power there is behind the market price of Bitcoin that is traded on exchanges.
“This increases the [BTC] cost of production, and puts additional stress on miners,” said the on-chain analysis company.
Meanwhile, the dollar index, a measure of the greenback’s strength against a basket of six currencies, rose 0.3% on Monday. Analyzing a chart of the index, Justin Bennett, a cryptocurrency trader, said it was showing “some early signs of weakness.”
Cryptocurrencies and other risk assets tend to move in the opposite direction to the dollar index so any lack of strength in the dollar index basket is generally seen as a positive for digital currency prices.
Kaiko Research said both Bitcoin and Ethereum open interest on Binance – the world’s largest cryptocurrency exchange – has risen to all-time highs, which is a signal that fresh capital is entering the digital currency markets.
Open interest is the total number of contracts of a derivative that is traded on an exchange at any one time. A rise in open interest on derivatives platforms such as Binance generally indicates rising trading sentiment.
The cryptocurrency market data company said in a note that Bitcoin open interest has shot up by 20% since the end of September to 183,000 BTC, while in a similar period Ethereum open interest rose by 10% to 1.3 million ETH.
Technical traders support the bullish outlook for Bitcoin prices going forward.
Michaël van de Poppe, a popular cryptocurrency trader and media personality, said that the present lack of conviction in Bitcoin pricing meant that crucial ratios – such as the digital currency’s market capitalization divided by its realized capitalization – presented buying opportunities now for investors.
The ratio, called MVRV, is now at one of its lowest levels in Bitcoin’s trading history, he said. MVRV is a measure of Bitcoin’s fair value when accounting for coins lost in wallets and those held by longer-term investors and is seen by traders as a more accurate gauge of the value of the Bitcoin network than market capitalization.
“The current traded price per Bitcoin is far beneath the fair value,” said the cryptocurrency trader on Twitter.
Van de Poppe told his followers on the social media platform to accumulate Bitcoin, citing in particular the last quarter of 2011, the year 2015 and the early Covid periods of low buy or sell-side conviction as the previous time these levels were seen for Bitcoin using the MVRV metric.
“We are bottoming on Bitcoin. Accumulate,” he wrote.
Produced by Zenger News in association with Benzinga.
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