- Bitcoin is experiencing another supply shock like in late 2020
- Long-term investors continue to accumulate without triggering market changes
- Liquid BTC supply is shfiting from speculators to long-term holders
BELGIUM (CoinChapter.com) — There are many people with different opinions on Bitcoin’s future price potential. Accurately predicting movements of volatile markets is never an easy feat, although certain aspects work in its favor. For example, the so-called supply shock is more than capable of pushing the price higher in the second half of 2021.
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Understanding The Bitcoin Supply Shock
It is crucial to put the current Bitcoin price to the side for a moment and look at the bigger picture. A Bitcoin supply shock is not a new temporary trend in the cryptocurrency space. It first started making a striking appearance in 2020, right before the Bitcoin price catapulted to higher highs in the latter part of the year. So even though the price is seemingly “stuck” in sideways momentum right now, there may not be a bear market whatsoever.
Under the current market circumstances, it seems plausible to expect a classic divergence. Even though the price has dropped significantly in recent weeks, there is an accumulation phase going on. Primarily long-term investors – institutional or otherwise – keep absorbing price dips without triggering any significant changes—a golden opportunity for those who expect better long-term potential from the world’s leading cryptocurrency.
As this can trigger a supply shock – demand will eventually overtake supply in a meaningful manner – an upward market squeeze is a logical outcome. These circumstances are very similar to the late 2020 setup. The market did not acknowledge the supply shock itself, but the price shot up astronomically. A repeat of that trend remains possible in the coming months.
Observing the on-chain metrics for Bitcoin, one can see the price action is not necessarily a recovery phase. On the contrary, every uptrend is pushed down violently and immediately, allowing long-term investors to scoop up more BTC at much lower prices. One explanation is how speculators control more coins than before, and they try to scalp every price change accordingly. Long-term buyers remain patient and keep DCAing, negating any significant market impact.
Metrics Paint A Bullish Case
When diving a bit deeper into the on-chain metrics, interesting details become apparent. The supply shock is a lot more tangible when looking at the chart below. It shows speculators are holding fewer BTC over time, whereas long-term investors continue to accumulate. An aggressive accumulation phase is underway, which is very similar to the trend of October 2020 and beyond.
Such divergences do not occur all that often. In most cases, the market responds immediately when the liquid supply dries up. With more BTC being taken out of the weak hands, the supply shock will become more outspoken over the coming months. The only logical outcome is Bitcoin moving up again like that of late 2020 and early 2021. A new all-time high remains within the realm of possibilities.
Although it may seem unusual to think of Bitcoin holders as “weak” or “long-term,” it is essential to distinguish the two groups. Those who speculate are in it for quick money. The rest has a long-term vision and will keep accumulating during dips. This latter group is now trying to regain control of the Bitcoin market during this supply shock. An intriguing development that will eventually impact the value per BTC.
JP Buntinx has been writing about cryptocurrency since 2012. His interest in crypto, blockchain, fintech, and finance allows him to cover a broad range of different topics.
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