The calm before the storm? Analysts say Bitcoin could reach $20,000 in three months

The price of Bitcoin (BTC) has been consolidating in a narrow range for months. Mohit Sorout, founding partner of Bitazu Capital, said that if the top cryptocurrency succeeds in breaking out, it will hit a new all-time high.

Since July 2020, the price of Bitcoin has been fluctuating between $10,200 and $11,800, with a fluctuation of 15%. Apart from some short-lived volatility spikes, its volatility has been low.

When Bitcoin remains stable within a narrow price range for an extended period of time, large price moves are often expected.

Whether Bitcoin will break through in the short term remains an uncertain factor. But Sorout said that if a breakthrough does occur, it will take three months for Bitcoin to reach $20,000.

Daily Bitcoin chart with trend lines. Source: TradingView.com, Mohit Sorout

Why did Bitcoin reach an all-time high three months after its breakout?

According to previous price cycles, Bitcoin tends to rise and fall rapidly after a long-term cycle. This pattern has historically seen both breakouts and declines.

From May 1 to July 20, the price of Bitcoin fluctuated between $8,800 and $9,800, stabilizing at around $9,100. After two months of consolidation, BTC rose 32% to $12,123 on the Binance exchange in 12 days.

Considering Bitcoin’s tendency to see large swings after long periods of consolidation, Sorout said:

“The calm before the storm. If Bitcoin breaks out today, there is a good chance it will reach its previous $20k in 3 months.”

When asked why it took Bitcoin three months to reach its previous $20,000 level, Sorout said it was based on observations of volatility.

According to Sorout, the price of Bitcoin could even reach $20,000 within three months. He noted:

“Based on the observation that sharp increases follow periods of calm volatility. It could even be earlier.”

An important variable to point out is that futures open interest has decreased compared to previous bull markets.

In particular, the total amount of futures open interest has declined following the U.S. Commodity Futures Trading Commission (CFTC) filing charges against BitMEX. This could lead to a more stable and gradual uptrend for Bitcoin, unlike past bull cycles.

BitMEX open interest year-to-date. Source: btctools.io

Factors that could strengthen BTC’s uptrend in Q4 and 2021

A strong argument for a Bitcoin bull cycle heading into 2021 is the recent surge in institutional demand.

On October 17, Grayscale CEO Barry Silbert said the company’s assets under management hit a record high of $6.4 billion. Silbert emphasized that the company had “significant inflows this week.”

Institutions such as Square and MicroStrategy that have been buying Bitcoin have stated that they view Bitcoin as a potential reserve asset. If this is the case, it could mean that many institutional investors are hoarding BTC with no intention of selling it in the near future.

The latest S2F model Source: PlanB

Despite the positive news of institutional inflows, the price of Bitcoin has remained relatively stagnant throughout October. But PlanB, the creator of the S2F model, said that over time, investors are likely to see asymmetric returns. He said:

“Why isn’t the Bitcoin price going up with all this institutional buying? Who is selling? Bitcoin price is exactly where it should be, staying above $10k, waiting for that moment.. asymmetric returns.. being patient!