Despite the fact that the price of bitcoin (BTC) has been in lateral movements in the last two months, the data observed in the blockchain shows bullish characteristics, notes analyst Willy Woo in his latest prediction of market. Long-term investors continue to accumulate BTC silently, without the market noticing, which generates a supply shock, says Woo.
This divergence, according to the analyst, should drive the bitcoin market higher. “I haven’t seen an opportunity like this since Q4 2020, when the network experienced a similar supply shock divergence, not recognized by the market.” says the analyst. In this context, the supply shock manifests itself when a significant decrease in supply is revealed to the market.
The new bitcoin holders are put to the test
This scenario is called by Woo “shake of the weak hands”, in the framework of a bull market, in which the price falls to test the determination of the new holders of bitcoin. The scenario has three phases: first the price begins to fall, which leads new buyers to sell, out of fear. Finally, experienced investors buy at low prices.
«Investors with more experience tend to have access to sources of capital, and their purchases cause a rapid rebound in price. Then a V-shaped recovery occurs, as shown below. ”Says Woo.
During the 2017 bitcoin cycle there were three V-shaped consolidations. Source: Willy Woo.
There are circumstances in which sales are very intense and it is not possible a quick V-shaped recovery, Woo argues. In those cases, it takes time to accumulate the coins poured into the market again, points out. “This results in a prolonged sideband that we call the accumulation floor,” says the analyst.
Typically, this scenario occurs at the end of bear markets, when the so-called “maximum pain” forces the latest investors to go straight into the hands of smart buyers, who step in to buy at realization prices, Woo notes.
The behavior of Bitcoin whales
Willy Woo states that the current situation is unique in regard to the bull market for Bitcoin, since he considers that the normal dynamics has reversed.
New entrants who switched to sale were well-funded speculative whales, whereas the buyers who have absorbed these currencies were less capitalized long-term holders. We spotted an unprecedented number of new whales when the price rose to $ 45,000; Your purchase added fuel to the bullish price action.
Willy Woo, Market Analyst.
However, according to the analyst, these “Speculative whales” took a profit last February, dumping massive amounts of BTC onto the market.
Buying and selling BTC shares of whales in the present cycle. Source: Willy Woo.
The data on chain indicate that whales started buying in the fourth quarter of 2020 and then sold during the first quarter of 2021, according to Woo . “By outlining the age of the moving currencies, we can see that the activity is due to the movements of the young currencies, so the most likely cause is the buying and selling of new speculative whales.”
In April, this intense volume of sales exceeded the normal buying pressure of the bull market , which caused a definitive influx of currencies for sale to flood exchanges Woo explained. “The sheer scale of the sale was the reason I forecast the possibility of a multi-month recovery on May 18. An accumulation fund was on the cards, rather than a V-shaped recovery. ”
Net BTC flows on spot exchanges. Source: Willy Woo.
BTC exchanges between strong hands and weak hands
While the previous image, of the BTC flows from or to exchanges, shows that the intensive sale has ended, it is necessary to observe the quality of the holders towards which the coins move , says Woo.
The following graph shows the movement of currencies between long-term holders and speculative participants.
BTC movements between strong hands and weak hands.
It is clear that long-term holders are absorbing speculative currencies at a rapid rate, says the analyst. ‘It’s now about waiting until this is reflected in the price action. The data are consistently pointing to the formation of an accumulation floor », he assures.
Regarding the predictions of others who assure that a new price collapse is possible to USD 20,000, Woo emphasizes that the fundamental parameters do not support this hypothesis. The panorama on chain is definitely bullish, he contends.
A supply shock is quietly building, unnoticed by the market, Woo argues. The following graph shows the ratio of currencies in strong and weak hands (Liquid Supply Ratio or LSR in English).
Relationship between BTC in strong hands and those in weak hands. Source: Willy Woo.
The LSR is the number of coins in the hands of participants with little tendency to sell (strong hands), divided between the currencies in speculative hands (weak hands), explains Woo.
This means, the analyst points out, that the currencies that went from whales to speculators, are being absorbed by long-term holders.
We are at the levels of a supply shock, last seen when the price was at $ 50,000. We rarely see these divergences where currencies exit the market without price action reflecting that exit. It is only a matter of time until the market realizes that the coins are coming out. This is a great opportunity.
Willy Woo, market analyst.
User growth peaks in 2021
Woo explains that, to calculate new users to the network, analytical firm Glassnode does not rely exclusively on the growth of Bitcoin addresses. Glassnode groups these around new participants, based on their interactions. From this analysis, he argues, it can be deduced that at present some 32,000 daily users are entering the network , which is a new maximum for 2021.
Growth of new Bitcoin users. Source: Willy Woo.
The growth of the number of new entities, which is the number of new users, minus the users who leave the network (empty their wallet), explains Woo.
In the graph, Woo marked in red what happens when the down season, after the peak of the 2017 cycle. New users stopped arriving, and a price increase could not be sustained, the analyst points out. This is not what is happening at the moment. New users are taking this opportunity to buy, and they are reaching the highest rate seen in 2021. This is another example of the divergence between the data on-chain and the price action, ”he points out.
Another divergence from the bitcoin price action mentioned by Woo, is the Evolution of demand for shares in Grayscale’s bitcoin fund. “Grayscale investors started selling their shares in February of this year, which led to the premium being discounted. Against this background of prices, the purchase of shares has restarted, presenting another divergence with the price action. ”
Finally, Woo addresses the migration of much of the bitcoin mining operations from China to other latitudes. While the pressure from the author Chinese authorities on miners has led to a decline in the network’s hash rate , Woo argues that the historic decline The difficulty that occurred on July 3 opens an opportunity for a price recovery and for a floor to be established in the price of bitcoin.
CriptoNoticias commented on Monday a study by Coin Metrics in the that defends Willy Woo’s thesis on the continuity of the bullish cycle of bitcoin. For this, Coin Metrics uses three different metrics than those proposed in Woo’s analysis: the waves or retention bands, the SOPR indicator associated with the profitability of BTCs and the relationship between the capitalization of bitcoin and its realized capitalization.
Sandra is the Reporter working for World Weekly News. She loves to learn about the latest news from all around the world and share it with our readers.
