Bitcoin is entering a bull market in 2021. These 5 factors are the key to unlocking the red bull market

The price of Bitcoin (BTC) has been bouncing between $8,600 and $10,000 for the past two months. BTC has shown little volatility since May, after encountering upward resistance at a critical price level of $10,440. However, five fundamental factors still point to a long-term uptrend in 2021.

According to data from Skew, Bitcoin’s 10-day realized volatility fell to its lowest level in a year on June 24. This could indicate that traders are cautious as BTC is at a critical price level. How BTC performs in the coming weeks could hint at its price trend by the end of the year.

1. Bitcoin’s realized volatility hit a new year low on June 24

Bitcoin’s actual volatility

Generally, most cryptocurrency traders and analysts in the market are optimistic or even favorable about the price of Bitcoin in the medium term. In the short term, analysts believe that BTC and other mainstream cryptocurrencies are weak due to external uncontrollable factors and variables such as the COVID-19 pandemic.

In the long term, strong macro factors suggest that BTC is poised for a steady recovery and upside. The most prominent data supporting the optimistic trend forecast is the increase in “HODLing” activity among investors.

In the cryptocurrency world, “HODLing” means “holding” and is an important investment strategy for many Bitcoin users.

2. Bitcoin is Accumulated and Hoarded

According to Rafael Schultze-Kraft, CTO of Glassnode, various HODLing data indicate that investor confidence has increased. First, Bitcoin’s supply has not changed in a year and has reached an all-time high of 61%. This shows a lack of willingness to sell BTC at current prices. Schultze-Kraft said:

"First, the obvious one: 61% (!) of Bitcoin supply that hasn't moved in over a year — that's an all-time high. Moreover, 44% hasn't moved in 2+ years (approaching ATH), and almost 30% hasn't moved in 3+ years. Loads of hodling here."

The Chinese translation of the above: “First, the obvious: 61% (!) of Bitcoin’s supply is over a year old, which is the highest ever. In addition, 44% has not been moved in more than 2 years (close to ATH), and nearly 30% has not been moved in more than 3 years. A lot of hoarding here!”

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Bitcoin supply. Source: Glassnode

Schulze-Kraft further highlighted that a metric called “HODLer Net Position Change” shows that investors have been hoarding Bitcoin in large quantities in 2020. This data depicts that many retail investors are unwilling to sell BTC, noting that “since the beginning of this year, there have been only 16 days when the BTC-HODLer net position change value was negative.”

If the BTC-HODLer net position change value remains positive, it means that investors will not transfer funds from personal digital wallets to digital asset exchanges for sale. In March 2020, the price of Bitcoin fell below $3,600 on several major futures exchanges.

Alistair Milne, chief investment officer of Altana Digital Currency Fund, suggested that if this drop does not shake investor confidence, there will not be many factors in the future. Milne said: "Before the bull run of the past two months, the last similar HODL price was around $400 during the three-month consolidation period, and then guess what will happen in this cycle? 70% peak?"

Historically, bull runs in the cryptocurrency market have coincided with an increase in HODL activity. For example, in early 2018, Bitcoin’s “HODL Wave” began to rally. From March to July of the same year, BTC rose from around $4,000 to $14,000.

Bitcoin HODL Wave Correlation with BTC Price

As such, Philip Swift, creator of the cryptocurrency market data platform lookintobitcoin, said: “Such high HODLing occurred at the start of previous Bitcoin bull runs.”

3. Institutional investors continue to invest in Bitcoin

Since March 2020, the assets under management of the Grace Bitcoin Trust have increased from $1.577 billion to $3.541 billion. The substantial growth in the size of assets under management indicates that demand from institutional investors is also accelerating.

Most specifically, the selection of investment vehicles available to U.S. institutions to gain exposure to Bitcoin is narrow. Without digital asset exchange-traded funds, the Grayscale Bitcoin Trust would likely remain an investment vehicle for institutional investors.

Grayscale Bitcoin Trust’s assets under management hit an all-time high, while Bitcoin’s price is down more than 50% from its all-time high, a positive metric that suggests institutions are confident in BTC’s long-term trend and more confident than they were three years ago.

However, according to Ryan Watkins, a researcher at Messari, reports that Grace is buying up a large portion of newly mined Bitcoin may be exaggerated. Watkins explained that Grace has only purchased 31% of newly mined Bitcoin since the halving on May 11:

“Grayscale has bought way less Bitcoin than many think. Taking into account “physical” purchases, Grayscale has only purchased 31% of all new Bitcoin mined since the halving, far less than the 150%+ many have reported. This is just one of many misconceptions about the Grayscale Trust.”

While analysts note that it is key to consider figures that may inflate the trust’s actual numbers, a cumulative 31% of mined Bitcoin is still a fairly high number.

4. Optimistic Technical Structure

Cryptocurrency trader Nunya Bizniz said that the six-month chart of Bitcoin will show a green 1 or G1 candle under the Tom-Demark sequential indicator system. Every time a G1 candle appears, Bitcoin will experience a continuous rise for several years. The trader also said: "The green 1 candle marks the beginning of the uptrend. The six-month candle will end with a G1 today. Bulls are running ahead?"

Bitcoin six-month price chart. Source: lookintobitcoin

In addition to some favorable technical structures and macro indicators, futures data also show that the market is not overbought. Typically, when Bitcoin prices experience a sharp correction, it is triggered by the capitulation of over-leveraged buyers. On futures exchanges such as BitMEX, buyers typically borrow funds with leverage ratios as high as 100 times to enter into long contracts on Bitcoin. If BTC falls, it may lead to a cascade of liquidations and a sudden drop in prices.

A technical analyst known as "Byzantine General" said that the funding rate of perpetual swap contracts and open interest rates on BitExchange show that BTC is not overbought yet. They said: "At the peak of the last rally in February, there were a lot of very clear signs that the market was overleveraged and overbought.

But we’re not really there yet.”

Possibly due to the bullish mid-term trend for Bitcoin, the number of high-net-worth investors moving funds from exchanges to personal wallets has increased in recent months.

According to data from Glassnode, the number of whales in the Bitcoin market has exceeded 1,800. However, considering that the amount of BTC held by whales has not increased, this shows that the BTC market is no longer concentrated with new entrants.

5. The rise in hash rate brings all the macro factors together

When the block reward halving occurs on May 11, analysts expect the Bitcoin blockchain network’s hash rate to drop significantly, as the event causes the amount of Bitcoin mined to drop in half, thereby reducing most miners’ revenue by 50% overnight.

However, data from the website "BlockChan.com" shows that Bitcoin's bit rate has recovered to close to the halving level. Mining remains healthy despite the halving, which may further boost Bitcoin's overall sentiment.

The large mining centers in Sichuan, China, still maintain a lot of profitability. The rainy season has led to a drop in electricity prices, which has reduced the cost of mining BTC. Therefore, miners do not have much incentive to sell large amounts of BTC in the short term to cover costs. Usually, over-leveraged miners are forced to sell after the halving due to the surge in Bitcoin mining costs. This time, the block reward halving has been met with relatively low selling pressure.

Therefore, the combination of low selling pressure from miners, favorable long-term technical structures, increasing bullshit activity, a growing number of whales, and increasing institutional adoption increases the likelihood of a new rally by 2021. (Baijiahao)