Monday, October 26, 2020

More investors HODL Bitcoin in anticipation of a 2021 BTC bull market

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According to on-chain analyst Willy Woo, an indicator called “reflexivity” has been increasing in recent months. Woo explained that the indicator measures Bitcoin investors’ tendency to hold onto their BTC as its price rises. It’s essentially an alternative way to gauge the HODLing activity of retail investors.

Bitcoin market cap gain per dollar invested or reflexivity. Source: Willy Woo

This next bull run may eclipse the previous cycle

There are several reasons why retail investors might be holding onto their BTC even more so than in previous bull cycles.

If Bitcoin rallies in 2021, most investors would see it as a post-halving bull rally. Historically, BTC has rallied 12 to 15 months after each halving, recording a new all-time high each time. Based on the tendency of BTC to rally after a halving, retail investors might be holding as a strategy to avoid being priced out if a strong sustained rally begins.

Bitcoin has also shown a surprising level of resilience throughout multiple potential black swan events. After its initial recovery from the pandemic-induced crash in March, it has stayed above $10,000 despite numerous negative events.

Most recently, the price of Bitcoin slumped after the U.S. Commodities and Futures Trading Commission (CFTC) charged BitMEX with violating the Bank Secrecy Act.

After the CFTC announcement BTC price fell below $10,500 but it quickly recovered to the $10,700 support level. According to Woo, this is possibly due to the confluence of the two key factors. Woo explained:

“This [reflexivity] is the tendency of HODLers to hold onto their coins harder as price increases. I had expected reflexivity to increase during the mania phase of BULL markets, but it looks quite constant from the last two cycles… This cycle is interesting; reflexivity is increasing rather than static compared to last cycles. While we now need more capital invested to get similar % gains in price, the effect of HODLers holding onto coins tighter is magnifying ‘number go up’ per dollar invested.”

Heading into the fourth quarter, industry executives believe the U.S. presidential election could benefit Bitcoin and the positive HODLing data could further buoy BTC price.

The U.S. presidential election and Q4 may push BTC price higher

Industry executives and prominent investors in the cryptocurrency industry foresee the upcoming presidential election in November benefiting Bitcoin.

Su Zhu, the CEO of Three Arrows Capital, said a Democratic sweep would catalyze Bitcoin due to various macro factors.He also suggested that a second term for Trump could also benefit Bitcoin. He wrote:

“Biden is extremely bullish for BTC because democrat blue wave could usher in unprecedented installation of MMT agenda w/ corresponding dollar weakness and deficits. With that said Trump is also bullish.”

As Cointelegraph reported earlier this week, traders including Peter Brandt believe higher time frame charts point to a strong uptrend for Bitcoin. The combination of favorable technicals, strengthening fundamentals, and rising HODLing activity could buoy a BTC bull run in 2021.

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