In our last article, we determined and analyzed the on-chain metric changes for Bitcoin that took place after the crash. In this part, we will understand how these factors affect the current market structure and what lies ahead for Bitcoin in 2021.
So, how do on-chain alterations help Bitcoin?
Now that we have a proper understanding of the key factors that have undergone a reset, we will identify how it affects Bitcoin‘s market structure. It is important to note that Bitcoin exhibited an aggressive market rally in 2021. It lasted more than 4 months, from the beginning of January until the market sell-off in May. A cooldown period is essential for such price surges, otherwise, the structure would only be looking for a deeper drop from the top.
Coming to the important schematics of a bull cycle, there are two particular ranges where most institutions like to trade around – the Demand Zone and the Supply Zone.
The Demand Zone represents a range during a period of correction, one which enables a sharp surge upwards within a few price candles. Similarly, the Supply Zone is a range where the asset may witness a sharp correction after a bullish rally. Both of these zones represent key windows of buying and selling and are currently evident on BTC’s chart.
As observed, the Demand Zone was re-tested during the price correction, following which BTC surged immediately. One of the main reasons why the Demand Zone facilitates a quick recovery is that institutions largely trade from these ranges. Here, it is important to note that institutions do not chase the market price, only retail traders do.
Accredited investors wait for a correction before getting their orders through, and that is exactly what probably happened during the sell-off. Hence, there is always greater panic on the short-term holders’ side, as explained by one of the aforementioned factors.
How does BTC react now?
In light of the fact that momentum is down, recovery won’t be straightforward and we might not see ATHs levels in a few weeks. While institutions reverse the trend, it still depends on retail traders to move the momentum forward. Keeping all the factors in mind now, we are possibly looking at consolidation for a while now, before we break the $40k-$45k window.
Bitcoin’s price will see another correction once the Supply Zone is tested.
Testing the lower range of $50k, Bitcoin should stabilize again, before reaching new high levels (primarily $70k-$80k) near the start of the 4th quarter. Keep in mind, however, that the bullish rally is still intact unless BTC drops under the Demand Zone. If that happens, we would be looking in a different direction altogether.