Just as Bitcoin started showing early positive developments of recovery, fear of a new variant of COVID-19 sent global stocks sharply lower, causing the crypto market to decline.
Although the near-term price action looks bearish, the overall trend in fundamental and on-chain continues to remain strong, suggesting the bull market is likely to continue. Bitcoin has tested a critical uptrend support line around $54K, entering a very crucial technical zone of support.
Chart by TradingView
The Technicals
Near-term technicals remain cautious, especially with the pullback in stocks. It’s possible the stock market to be entering a short-term phase of correction, which is also likely to impact BTC. The major support is currently between $53K to $50K – a critical zone the bulls need to protect.
The 4-hour chart is showing early signs of a bullish divergence which is a positive development for the short term. However, it’s still too early to call a bottom as we have to see how stocks perform over the next week. Ideally, the cryptocurrency would hold the support line, which would be a positive signal for BTC bulls, as this trend line connects the lows from July to the lows of the September pullback.
Chart by TradingView
With a near-term uncertain outlook for stocks and risk of further long liquidations, investors should be prepared for wicks down to $53K to $50K.
Regardless of further downside, this pullback remains an attractive buying opportunity for long-term holders (LTHs) as nothing in BTC has changed fundamentally. This is mostly a shakeout in the middle of a bull market with the price expected to surge once the bottom is in and certainty returns.
The On-Chain
Despite the 22% pullback from the recent highs at $69K, the trend in on-chain metrics remains firmly bullish. LTHs and miners are not selling aggressively, which is a very bullish signal. The selling pressure has come from long liquidations, younger coins realizing losses, and more recently – the macro risk-off regarding virus concerns.
STH SOPR has spent many days below 1.0, indicating younger coins who recently chased the rally above previous all-time highs have been selling at a loss. Even with increasing volatility and a large pullback, BTC all exchange reserves continue falling to multi-year lows, indicating investors are buying the dip.
Typically, as a bear market begins, long-term holders ad miners sell aggressively while exchange inflows significantly push higher, causing reserves to rapidly increase. The current conditions do not show any of this while the exchange reserves continue to fall.
This strongly suggests this is a healthy pullback mainly to liquidate leverage before BTC continues the bull market.
Chart by CryptoQuant
Conclusion
Near-term conditions remain cautious, mainly due to external risks such as virus fears and global stocks correcting. The long-term trend in BTC fundamentals and on-chain remain bullish.
Accumulating BTC at current levels of $54.6K and especially between $53K to $50K might be favorable, considering older coins and miners are not selling aggressively.
It would be very good to see Bitcoin outperform stocks during a global risk-off environment, which is what we saw during September and October.