Bitcoin analysis: BTC dips but long-term outlook remains bullish

Bitcoin takeaways

• Last week’s big breakouts in Bitcoin and Ethereum are being tested with dips today.
• Bitcoin has at least 4 long-term bullish catalysts.
• Ethereum’s successful “Shapella” upgrade has de-risked the staking process, potentially clearing the way for a big reduction in ETH supply.

It’s been a whirlwind couple of weeks for major cryptoassets.

Between general “risk on” trade and last week’s successful “Shapella” upgrade to Ethereum, Bitcoin and Ethereum both hit their highest levels since last summer above $30K and $2K respectively. Just as traders were starting to get comfortable with last week’s big breakouts though, today has brought a round of selling to the space, raising questions about whether the recent rally is legitimate or merely a “fakeout breakout.”

Bitcoin analysis: Four bullish long-term catalysts

Looking at the world’s largest cryptoasset first, Bitcoin’s outlook remains bullish on a longer-term basis for 4 reasons:

First, Bitcoin saw its largest quarterly gain (+70%) in two years last quarter, signaling strong buying pressure after the Q4 2022 washout down below 18K.

Second, long-term holders used this time to accumulate the cryptocurrency, marking a classic “accumulation phase” shift from weak hands to strong hands. These so-called Risk Astleys (because they’re “never gonna give you up”, get it?) now hold record high amounts of Bitcoin at over 80% of the outstanding supply. This supply has essentially come off the market and sets the stage for the next bull cycle.

Source: Glassnode

Third, with the next Bitcoin halving now about a year away, we’re entering a historically bullish time for the crypto market that could last for the next two years.

Finally, and arguably for the first time in its existence, Bitcoin has found a use case beyond trading. Similar to NFTs on other chains, “Inscriptions” or “Ordinals” now allow Bitcoin enthusiasts to inscribe data on the Bitcoin blockchain. By increasing the demand for blockspace beyond mere trading demand, there is now more interest in using the blockchain, increasing its fees and security. As the chart below shows, daily Bitcoin transactions are running at levels historically seen only near euphoric peaks in price:

Source: Glassnode

From a technical perspective, Bitcoin is still holding above key previous-resistance-turned-support at $28.6K, despite today’s dip. While we wouldn’t be surprised to see today’s drop extend toward that level, longer-term accumulators may look to step in before we see too steep of a dip given the rising 50- and 200-day EMAs.

Source: TradingView, StoneX. This product may not be available in all regions.

Ethereum analysis: Smooth “Shapella” could drive long-term supply lower

Relative to its bigger brother, the longer-term outlook for Ethereum is potentially even more bullish. Heading into last week’s “Shapella” upgrade, many analysts were expecting waves of selling to hit the world’s second-largest cryptoasset as the stakers that support the network could finally sell their previously-locked ETH.

While logical, there is at least one major problem with that theory so far: stakers aren’t selling en masse. In fact, net staking redemptions lasted only a few days and since the start of this week, ETH holders have been increasing net staking activity:

Source: Nansen

In a way, this make sense as it’s objectively now less risky to stake Ethereum as it’s now relatively easy to withdrawal their funds if needed (i.e. staking ETH now less liquidity risk than there was at the start of last week). As the chart below shows, Ethereum is running well below other “proof-of-stake” chains in the percentage of its supply that is staked, and if that picks up in the coming weeks, it will provide a consistent reduction in supply that could further support prices:

Source: StakingRewards

As for the near-term price action, ETH/USD is testing its previous breakout level at 2,000, and a break below there could point to a deeper retracement. Even if we do see that near-term dip though, the aforementioned “tokenomics” for the Ethereum ecosystem should entice buyers and put a floor under price, with initial support near $1800, where the 50-day EMA coincides with a key level of previous resistance.

Source: TradingView, StoneX. This product may not be available in all regions.

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter @MWellerFX