Bitcoin has fallen by almost 3.5 percent after establishing its year-to-date high at $15,977 last week. But despite risks of extended downside momentum looming, a fundamental indicator sees the cryptocurrency in a strong buying zone.
The so-called “All Exchange Inflow Mean,” or MA7, measures the average Bitcoin deposits made across all exchanges on a 7-day timeframe. When the metric tops out, Bitcoin signals a rebound to the upside, at least according to the indicator’s creator CryptoQuant, a data aggregation platform.
Exhaustion in Bitcoin inflows means that traders are switching their selling sentiment to “HODL.” They keep lesser and lesser cryptocurrency units in their exchanges’ wallets that leads to lesser liquidations. The CryptoQuant chart below illustrates the relationship between the Bitcoin price and MA7.
Bitcoin Inflow and price correlation. Source: CryptoQuant
The latest instances show that Bitcoin trends upward on signs of a pullback from the MA7 indicator. Most recently, the cryptocurrency rallied by more than 200 percent after MA7 topped out in March 2020. The results were similar in late 2019 and late 2018.
“After the price plunge, there have been subsequent exchange inflows by whales for two reasons. 1/ In the bull market: To sell it at the local high. They sell when the retail investors are active on exchanges. 2/ In the bear market: To sell it if the unusual fear-sell happens,” explained Ki-Young Ju, the CEO of CryptoQuant.
‘The latest MA7 readings show that Bitcoin is still in a strong buy zone,’ he added.
Bitcoin Technical Outlook
Analysts away from on-chain fundamentals predicted a similar bullish outcome for Bitcoin but based on technical indicators. A pseudonymous daytrader noted the cryptocurrency rising upward inside a range that appeared like an Ascending Triangle.
Bitcoin trade setup, as illustrated by PostXBT. Source: BTCUSD on TradingView.com
In retrospect, an Ascending Triangle in an uptrend is a bullish continuation pattern. The price rises while staying above the upward slope of the Triangle. Meanwhile, it tests the Triangle base as resistance for a potential breakout move to the upside. If it happens, the price rises by as much as the maximum length of the Triangle.
“The level I marked out for a retest is getting chopped up to hell,” the analyst said. “Dismissing it and focusing on [the] resistance at the highs. Ascending triangle forming, which is typically bullish. Redline marks where a break in market structure would appear. Bullish whilst we’re above.”
A majority of downside risks Bitcoin face now lies outside the technical purview.
One of the major macro catalysts that could drive the cryptocurrency lower is a no-stimulus scenario. Expectations of the Republicans holding a majority in the US Senate could delay President-elect Joe Biden’s plans to introduce a massive coronavirus relief package.
At the same time, Pfizer’s successful coronavirus vaccine trial expects to decrease investors’ appetite for safe-haven assets. That also poses risks for Bitcoin as it trades near its three-year high – an attractive selling area.
Meanwhile, trader Koroush AK reminded:
“A 50% retracement is healthy during an uptrend. In fact, we would need to go below $14,000 for my bias to shift. So long as the trend stays intact, I will be favoring longs and aggressively longing dips.”