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According to Willy Woo, the supply shock is going unreported, similar to Q4 2020 when the price of Bitcoin soared.
As Bitcoin (BTC) continues to trade sideways inside the $30,000–$40,000 area, new information concerning the possibility of a bullish breakthrough emerges.
Is Bitcoin silently readying for a breakout like in Q4 2020?
Willy Woo, an on-chain analyst, anticipates a potential supply shock in the Bitcoin market, as long-term holders continued raking BTC supply from short-term ones. Woo warned in his Friday email that the procedure might cause more Bitcoin to be removed from circulation.
The expert alluded to the Bitcoin Supply Ratio — the ratio of Bitcoin owned by strong hands versus weak hands — adding that the former is actively absorbing selling pressure from whales who have been dumping their crypto holdings since February.
“It reminds me of the supply shock that went by unnoticed by the market in Q4 2020,” wrote Woo. “Pundits were debating whether BTC was an inflation hedge in a post-COVID world when the data was pointing to long term investors stacking BTC at a fast pace.”
“The price subsequently went on a tear, very quickly de-coupling from its tight correlation with stocks.”
New active users rising
Glassnode, another on-chain data analytics service, also boosted Bitcoin’s booming adoption prospects. The portal revealed that the Bitcoin network has been onboarding an average of 32,000 new users every day, which is a new high for 2021.
The Bitcoin Network User Growth indicator peaked in January 2018, reaching over 40,000 before falling along with the price. It demonstrated that new users ceased joining the Bitcoin network when its price fell from a high of $20,000 in January 2018 to as low as $3,200 in December 2020.
“This is not the structure we are experiencing right now,” explained Woo. “New users are taking this opportunity to buy the dip; they’re coming in at the highest rate seen in 2021.”
“Again, another example of on-chain data showing divergence to the price action.”
Bitcoin is now trading below $34,000 at the time of publication, up 17.52 percent from its previous low of $28,800 on June 22.
Meanwhile, Petr Kozyakov, co-founder and CEO of crypto-enabled payment network Mercuryo, feels that as the London hard fork approaches, Ether (ETH) may grab the spotlight from Bitcoin.
“The proposed launch of the London Hard Fork upgrade, as well as the eventual migration to Ethereum 2.0, is helping to renew investor confidence,” he said. “Once the hype subsides, Bitcoin could rise to $50,000 in the short-to-medium term.”
Bitcoin withdrawal transactions hit one-year high
Data analytics firm CryptoQuant reported earlier Tuesday that Bitcoin’s net outflow transaction count from spot exchanges crossed the 60,000-mark for the first time in a year. Meanwhile, the total number of Bitcoin deposits to spot exchanges’ wallets decreased to below 20,000.
The BTC withdrawal rate increased at a period when authorities increased their monitoring of cryptocurrency trading sites. For example, the Financial Conduct Authority (FCA) of the United Kingdom has barred Binance, the world’s largest cryptocurrency exchange by volume, from doing regulated activity in the nation “without the prior written consent.”
Barclays told its clients on Monday that they could no longer send funds to Binance due to the FCA’s decision. The London-based bank, on the other hand, stated that consumers may withdraw cash from Binance to their banking accounts.
Earlier on Tuesday, the People’s Bank of China also took action against a local company for allegedly trading cryptocurrencies on the side of their regular business activities. In May, Beijing essentially outlawed any cryptocurrency-related activity, thereby compelling the world’s largest crypto mining community in its areas to either shut down or relocate their operations elsewhere.
In general, an increase in Bitcoin withdrawal rates is interpreted as traders’ intention to keep the cryptocurrency rather than swap it for other assets such as competing cryptocurrencies or fiat money. As a result, with global BTC withdrawals reaching a one-year high, expectations remain up as Bitcoin prepares for another bullish run on the so-called “hodling” mentality.
But the total Bitcoin reserves held by exchanges have remained relatively stable since May, indicating that the latest spike in withdrawals has had little impact on the overall exchange balance as of Wednesday.
It is worth mentioning that the BTC balances of exchanges might vary considerably depending on their geographical supremacy.
For example, trading platforms with ties to China and Chinese traders observed decreases in Bitcoin holdings. Binance, whose BTC reserves fell by 7,214.97 units in the previous week, and Huobi, which handled withdrawals totalling 4,398.63 BTC in the same timeframe, are among them. OKEx BTC balances fell by just 1,357.53 BTC.
However, Kraken, located in the United States, added 6,751.98 BTC to its vaults in the preceding seven days, the most among non-Chinese exchanges, while Coinbase’s reserves grew by 168.88 BTC.