Examining the chances of a year-end breakout in Bitcoin

 Examining the chances of a year-end breakout in Bitcoin

Bitcoin plummeted by over 13% on November 16th. On the 3rd of December, it fell by about 25% again. The fear over BTC's corrections and subsequent consolidation spawned a slew of theories about whether Bitcoin would rise beyond $55,000 or fall below $45,000. This has remained a critical question as the year draws to a close.

There have been consistent bullish divergences over the last few months, pointing to year-end breakouts. Despite this, BTC has managed to decline in price while these bullish formations are still active. As a result, expecting $100,000 by the end of the year is a bit optimistic. Bitcoin, on the other hand, could still see a rebound.

Key divergences looking good 

BTC's price has been falling since Federal Reserve Chair Jerome Powell's speech, but it appears to be levelling out now as another weekly candle close awaits to determine the price path ahead.

When looking at the number of Bitcoin addresses that make inflow transactions to various exchanges, it can be seen that whenever the number of BTC addresses that make inflow transactions to various exchanges rises, there is a definite bearish movement in the price of Bitcoin.

On the 9th of November, the addresses count inflows grew dramatically as compared to the previous four months, resulting in a bearish price movement.


Source: CryptoQuant

Bitcoin, on the other hand, might begin a fresh positive trend as soon as the value of address count inflows stabilises. However, it appears that there may be a few of more bearish waves in the near future.

Bitcoin's monthly Chaikin Money Flow (CMF) and its relationship to macro tops, on the other hand, provide a fractal that could come into play shortly. As is the situation right present, a macro high in CMF frequently coincides with a cycle price peak preceded by some consolidation.


So, where do we stand?

While Bitcoin's supply-demand dynamics have largely been positive this quarter, with bullish divergences becoming more prevalent, the mid-short term outlook for BTC appears to be bright.

The Exchange Supply Shock Ratio (a statistic that compares total Bitcoin supply on exchanges to total Bitcoin supply in circulation) is presently at its highest point since November 2020.


Source: CryptoQuant

In June this year, when this divergence played out, Bitcoin rallied by 72%. In September 2021, Bitcoin rallied by 64%. Considering the end of the year and festive season, BTC could see a rally if the same plays out this time too.

However, for Bitcoin to start rallying, it is crucial for the Open Interest to show a relatively higher hike, when compared to the price. For now, the OI has been relatively stable. On the contrary, if it registers some noticeable movements, we might be getting ready for another leg up.

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