Observation | Who will win the battle for Bitcoin's $20,000 price?

(Picture) Bitcoin's highest price in history on major trading platforms

Last night, Bitcoin surged to around $19,400, just one step away from its all-time high. There are three potential reasons why the $20,000 resistance level is difficult to overcome: bull traps, market psychological resistance, and overheated derivatives markets.

Bull Trap

The bull trap refers to the main force using funds, news or other means to manipulate the technical form of the chart, making it show a bullish signal, inducing retail investors to chase the rise and buy, and then a sharp decline occurs to kill the longs. There were 5 bull traps in the main rising wave of Bitcoin's last bull market. The callback range of each wash was between 30 and 40 points, causing retail investors to sell at a loss or have their positions liquidated after chasing highs (this is also the reason why many people lose money in the bull market).

It is foreseeable that if Bitcoin experiences a sharp correction near $20,000, there will be various bearish arguments such as "Bitcoin is building a historical double top" and "Bitcoin is about to enter a downward cycle". Therefore, long orders or spot orders that enter the market near the new high will be extremely painful.

Market psychological resistance

If Bitcoin breaks through its previous all-time high, it will undoubtedly start a new journey of price discovery. In theory, Bitcoin can reach various targets that many industry big Vs and analysts have shared in the past. Based on the current cycle, most analysts predict a range between $25,000 and $100,000.

At this critical juncture, market funds are still relatively cautious. After all, it is a historical high, and there will inevitably be short sellers actively defending. The temptation to short is still very great, because as long as you can successfully snipe the bulls at the key point that everyone is paying attention to, the market will follow suit and sell, and the short sellers will get huge profits.

Long rates are extremely high

Currently, the funding rate for Bitcoin perpetual swap contracts on major cryptocurrency trading platforms ranges from 0.05% to 0.1%. This means that longs need to pay a fairly high fee to shorts. Due to the extremely high long rate, shorting around $20,000 is also very attractive.

After analyzing the bearish factors, let’s take a look at the main factors supporting the continued rise of Bitcoin: whales hoarding coins, reduced supply on exchanges, and explosive trading volume trends.

Whales hoard coins

Whale clusters occur when Bitcoin whales buy at a certain price point and hold onto their coins. This is a sign that whales are hoarding coins and have no intention of selling them in the short term. In November, as the price of Bitcoin rose, whale clusters (green circles in the picture) were steadily forming.

The difference between this rally and previous price cycles is that the recent uptrend has proven to be more sustainable. In fact, each whale cluster shows that every major support level of Bitcoin is accompanied by whale hoarding behavior.

In addition, data from the on-chain analysis platform Santiment also shows a similar trend. Researchers found that the number of Bitcoin whales has increased significantly in recent months. In the past few days when the price of Bitcoin soared to more than $18,000, the number of whale addresses holding at least 10,000 BTC has surged to 114. In addition, the number of whale addresses holding at least 1,000 BTC reached 2,449, also setting a new high.

Supply drying up

A persistent trend in the 2020 bull cycle is the continued decline in the balance of Bitcoin on trading platforms, which means that there is less selling in the market. Every time a spot exchange increases its BTC balance, the new supply is almost quickly exhausted.

Trading volume surges

Since September, the volume of institutional trading and spot trading has been growing rapidly. In November, the open interest of CME’s Bitcoin futures and options exceeded $1 billion, while Binance’s BTC/USDT daily trading volume has remained at a level of more than $1.5 billion.

Data shows that the spot market has been leading the rally, not the derivatives or futures markets. This trend makes the rally more stable and reduces the risk of a large pullback. When the futures market accounted for the majority of volume during Bitcoin's rally, there was a risk of massive liquidations. This time the spot market has been leading the rally, making it more sustainable.

Active OTC market

(Figure) Bitcoin liquidity ratio hits a three-year low

On-chain data shows that the over-the-counter market is active, which usually indicates that whales, high-net-worth investors and institutions may be buying Bitcoin. CryptoQuant data analysis company believes that because the Bitcoin fund flow ratio hit a three-year low a few days ago. The deposit and withdrawal transaction volume of the trading platform only accounts for 3% of the on-chain transaction volume. Although Bitcoin may see some price corrections, the $20,000 resistance will be taken.

Disclaimer: Investment involves risks, please be cautious when entering the market. This information is not intended as investment and financial advice.