Wednesday, October 28, 2020

Bitcoin whale clusters pinpoint critical levels BTC must hold to rally

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Bitcoin (BTC) whale clusters point toward three critical price levels to maintain a bullish market structure in the near term.

Whale clusters form when large investors purchase Bitcoin and do not move it, making it an unspent transaction. These clusters typically indicate where crucial support levels exist and the logic is that BTC needs to maintain this level to see a prolonged rally.

According to data from Whalemap, the three important support levels marked by whales are $10,407, $10,570, and $10,667.

Macro Bitcoin support levels represented as whale clusters. Source: Whalemap

Macro Bitcoin support levels represented as whale clusters. Source: Whalemap

Whale movements may signal the start of a Bitcoin uptrend

Whales, or individual investors holding large amounts of Bitcoin, usually seek significant liquidity to buy or sell. This is because they deal with substantial buy or sell orders and manage this need by targeting highly liquid price points.

Whale accumulation often takes place as weak hands capitulate and typically a retail sell-off amidst peak fear in the markets coincides with whale purchases because there are large sell volumes to absorb.

In the past five days, there were many reasons and unexpected events that could have pushed retail investors to sell.

On Oct. 1, the U.S. Commodities and Futures Trading Commission (CFTC) charged BitMEX with violating the Bank Secrecy Act. Almost immediately after, BTC plunged by 4.1%.

Then, on Oct. 2, U.S. President Donald Trump tested positive for COVID-19. The President’s unexpected COVID-19 contraction temporarily shook financial markets and added some selling pressure on Bitcoin.

The two events caused fear in the cryptocurrency market to intensify and Bitcoin price fell from $10,900 to $10,500.

Over the following days the price recovered to $10,670 and this new found resilience corresponds with the whale clusters that formed on Oct. 2.

Two technical factors could further fuel BTC momentum

In addition to the activity of whales, there are two technical catalysts that could buoy the sentiment around BTC.

First, the Bitcoin futures funding rate across major exchanges are either negative or neutral. When a funding rate is low, it signifies that the majority of traders on futures exchanges are betting against BTC.

A prolonged period of negative rates raises the likelihood of a short squeeze, which could cause BTC to increase. A pseudonymous trader known as “Byzantine General” said:

“We’re getting closer to Monday and funding has gone more negative. Especially Binance, where most of the fish are.”

Furthermore, since the CFTC’s charge against Bitcoin, market data provider Glassnode reports that investors pulled 45,000 BTC from BitMEX. The holdings primarily moved to Gemini and Binance, two of the top cryptocurrency exchanges.

Many industry experts foreshadowed regulatory action against BitMEX and the resulting Bitcoin outflow is not terribly surprising.

One could argue that the outflow of funds from BitMEX to more reliable two exchanges could benefit the overall market sentiment. Particularly because Gemini is considered to be one of the strongest exchanges in the crypto sphere in terms of regulatory compliance.