Long-term investors continue to accumulate BTC quietly, unnoticed by the market, creating a supply shock.
A bullish outlook remains with new user growth, says Woo.
Long-term investors continue to accumulate BTC without the market noticing.
Although the price of bitcoin (BTC) has been moving sideways over the past two months, data from blockchain shows bullish characteristics, notes analyst Willy Woo in his latest market forecast. Long-term investors continue to accumulate bitcoin quietly, unnoticed by the market, creating a supply shock, Woo says.
This divergence, according to the analyst, should drive the bitcoin market higher. "I hadn't seen an opportunity like this since the fourth quarter of 2020 when the network experienced a similar supply shock divergence, unrecognized by the market," the analyst says.
New bitcoin holders put to the test
This scenario is referred to by Woo as a "weak hand shakeout" in the context of a bull market, in which the price pulls back to test the resolution of new bitcoin holders. The scenario has three phases: first, the price starts to fall, leading new buyers to sell out of fear. Finally, experienced investors buy at low prices.
"More experienced investors tend to have access to sources of capital, and their purchases cause a rapid rebound in the price. A V-shaped recovery then occurs," Woo says.
Woo argues that there are circumstances where sell-offs are very intense, and a quick V-shaped recovery is impossible. He notes that it takes time to build up the poured coins back into the market in those cases. "This results in a prolonged sideways band that we call an accumulation floor."
Typically, this scenario occurs at the end of bear markets, when so-called "max pain" forces the last investors to go straight into the hands of smart money, who step in to buy at nice prices, Woo notes.
Bitcoin whale behavior
Willy Woo argues that the current situation is unique as far as the Bitcoin bull market is concerned, as he believes that the normal dynamics reversed.
The new entrants who switched to sell were well-funded speculative whales, while the buyers who have absorbed these coins were less well-capitalized long-term holders. We detected an unprecedented amount of new whales when the price rose to USD 45,000.
However, according to Woo, these "speculative whales" took profits last February, dumping large amounts of BTC into the market.
According to the analyst, on-chain data indicates that whales started buying in the fourth quarter of 2020 and then sold during the first quarter of 2021. "By profiling the age of the coins moving, we can see that the activity is due to the movements of young coins, so the most likely cause is the buying and selling of new speculative whales."
In April, the intense selling volume exceeded normal bull market buying pressure, causing a substantial influx of coins for sale to flood the exchanges, Woo explained. "The sheer scale of the selling was the reason I forecast the possibility of a multi-month rally on May 18. An accumulation bottom was in the cards, rather than a V-shaped recovery."
BTC exchanges between strong and weak hands
While bitcoin flows to or from exchanges, the intensive selling has ended. It is essential to look at the quality of the holders to which the coins are moving, Woo argues. It is clear that long-term holders are absorbing speculative currencies at a rapid rate, says the analyst. "It's now a matter of time until this is reflected in prices. The data is consistently pointing to the formation of an accumulation floor," he asserts.
Regarding the predictions of others who claim that a further price collapse to $20,000 is possible, Woo emphasizes that the fundamentals do not support that hypothesis. The on-chain picture is bullish, he argues. A supply shock is quietly forming, unnoticed by the market. The analyst notes that long-term holders are absorbing the currencies that went from whales to speculators.
We are at levels of a supply shock, last seen when the price was at $50,000. Rarely do we 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 coins are exiting.
User growth to peak in 2021
Woo explains that to calculate new network users, analytics firm Glassnode does not rely exclusively on Bitcoin address growth. Glassnode performs clustering of these around new entrants based on their interactions. Some 32,000 daily users are currently entering the network from this analysis, which is a new high for 2021.
After the 2017 cycle peak, new users stopped coming in, and a price hike is unsustainable the analyst notes. "This is not what is happening right now. New users are taking this opportunity to buy, and they are coming in at the highest rate seen in 2021, another example of the divergence between on-chain data and price action," he notes.
Another divergence with the bitcoin price mentioned by Woo is the evolution of demand for Grayscale's bitcoin fund shares. "Grayscale investors started selling their shares in February this year, which led the premium to move to discount. At this price bottom, share buying has recommenced, presenting another divergence with price action."
Finally, Woo addresses the migration of much of the bitcoin mining operations from China to other latitudes. While pressure from Chinese authorities on miners has led to a decline in the network's hash rate, Woo argues that the historic decline in difficulty that occurred last July 3 opens up an opportunity for price recovery and a floor to be established bitcoin's price.
The retention/holding bands
The SOPR indicator associated with the profitability of BTC
The ratio between bitcoin capitalization and its realized capitalization