Bitcoin: BTC may have a short-term rally that has a lot to do with reserves
Bitcoin [BTC] has been trying to rally mid-week for the past few weeks to break out of the ongoing bearish control. The latest market observations suggest a similar outcome is possible this week, and here's why.
According to a Cryptoquant analysis by MAC_D, Bitcoin reserves in the spot market have decreased over the past two days. In contrast, Bitcoin holdings on derivatives exchanges increased during the same period.
The drop in BTC spot trading reserves is a good sign that people are buying. That was the case when BTC dropped below $19,000. The increase in BTC trading reserves in the derivatives market could indicate an increase in the demand for derivatives trading. It may not directly indicate that there is selling pressure coming, but it could be a sign of more volatility ahead.
One of the reasons for this expectation is that many derivatives traders engage in leveraged trading. Therefore, the price remains sensitive to a large number of leveraged positions. Both open interest and estimated leverage increased, confirming significant activity in the derivatives market.
Are the whales sitting on the sidelines?
The whales had their legs amputated for most of September. This is evident from the drop in the number of BTC addresses holding more than 1 BTC over the past four weeks.
Addresses holding more than 1 BTC at press time are at a four-week low. Investors should keep an eye on this metric, as a reversal will confirm a strong build.
Bitcoin's R-HODL ratio improved over the past 24 hours despite lack of demand from whales. This reflects increased activity in the derivatives market and can be seen as another indicator of an upcoming short-term uptrend.
Although these indicators point towards the possibility of decline, there is still a chance for more decline. BTC still has some room to push lower before hitting its short-term support. At press time, BTC is nowhere near the oversold zone.
Another bearish move is likely to result in a retest of the support near or below the $18,000 price level. On the other hand, there is still some divergence between Bitcoin's price and RSI that may have worked in favor of the bulls. The price will soon give way to the bulls as the relative strength increases.
What to expect?
Another brief rally is the most likely outcome, especially if the whales remain on the sidelines. Therefore, investors should keep an eye on whale activity, as that will determine the strength of the bullish outcome.
Sep 28, 2022