The Bitcoin Price Will Correct for 4 Reasons, but Will It Hit $20K First?
This is the biggest question at the moment.
|Sylvain Saurel||Nov 22|| 4|
The Bitcoin rally never seems to have to stop. At least that's the impression we had again this week. The Bitcoin price has risen by another +15% during this week:
For people who are not used to the volatility that the Bitcoin price can show from time to time, the numbers can make it dizzy.
Since the beginning of October 2020, we have been on a bullish rally that has seen the Bitcoin price increase by +75%. Since the beginning of the year, the increase in the Bitcoin price is +155%.
At the beginning of the day on November 21, 2020, the Bitcoin price hit a 3 year high of $18,965. The major resistance of the $19K barrier was tested for the first time. The Bitcoin price did not break through it, but anything is still possible as long as the Bitcoin price is above $18K.
At the time of writing, the Bitcoin price is $18.3K. So Bitcoin is still holding in the $18K range.
Despite all the optimism and even euphoria of some, I think that the Bitcoin price will correct for 4 main reasons in the coming days or weeks. My only uncertainty is whether the Bitcoin price will have had time to surpass $20K and beat a new All-Time High (ATH) before this correction starts.
The Spent Output Profit Ratio (SOPR) indicator reaches a very high level
You may not be familiar with SOPR. However, it is a metric that is very much followed by all those who are interested in the evolution of the Bitcoin price in the short term. The SOPR indicator measures how profitable Bitcoin HODLers are at a given moment.
The higher the SOPR, the more profitable the Bitcoin HODLers are. This means that there is a higher risk that some will take profits.
The SOPR is as high now as it was in June 2019 or at the end of 2018. Each time, we then experienced a strong correction in the Bitcoin price. It may be different this time, but it is something to keep in mind to make the best decisions in the days and weeks to come.
This is confirmed by this chart which shows that 99.9% of the Bitcoins purchased are currently profitable:
Stablecoins' inflow on exchanges is dropping, which indicates declining demand
Many investors first go through Stablecoins to buy Bitcoin. It is therefore interesting to carefully observe the inflow of Stablecoins such as USDT or USDC on exchange platforms.
When this inflow is high, it means that the demand for buying is likely to increase. When it is low, the pressure from sellers will increase.
The current situation suggests that selling pressure is increasing for Bitcoin. This is still moderate, but the trend is gradually reversing, which leads me to believe that Bitcoin has entered a "Sell High" phase.
If the correction will take place sooner or later, it seems there is still some room to reach $20K and beat a new ATH for Bitcoin before then.
A significant number of sell orders are placed in the $19K zone
The Bitcoin price tested the strength of $19K resistance on November 21, 2020, by reaching a price of $18,965. A rejection took place which saw the Bitcoin price fall back to $18K. Bitcoin is still holding in the $18K area suggesting that the $19K will be tested again in the coming days.
If Bitcoin were to break through this $19K resistance, a very large number of sell orders in this $19K zone would be waiting for it:
Many investors on Coinbase, Bitfinxex, Bitstamp, or Binance are just waiting for Bitcoin to pass the $19K to sell. This could trigger the expected correction in the Bitcoin price.
Bitcoin Fear & Greed Index reaches record greed levels
Updated daily, the Bitcoin Fear & Greed Index provides a good overview of the prevailing sentiment in the Bitcoin market. Currently, the general sentiment is one of extreme greed:
The index reaches 94, which is close to the historical record of 95 reached at the end of June 2019. Behind this record, a strong correction had taken hold of the Bitcoin market. The Bitcoin price had fallen from $14K to $7.5K by the end of October 2020.
Will the result be the same this time? That is the big question that is currently being asked. Many say that this time everything is different. I partly agree since the current increase is due to smart money and not to retail investors.
Although new entrants have a long-term view of Bitcoin, nothing prevents them from wanting to take advantage of an upcoming correction to buy even more at around $12K or $13K.
In my opinion, the correction in the Bitcoin price will take place. My only uncertainty is whether it will start before or after reaching a new ATH for Bitcoin. Feel free to tell me what you think about it in the comments.
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