The price of Bitcoin may stagnate until the beginning of 2021, show several indicators of the network, as investors may make a profit.
Analysis
The price of Bitcoin (BTC) has reached the $19,400 mark in the last 24 hours, which has served as a critical resistance level since early December. However, on-chain indicators show that the dominant cryptomeda may stagnate or consolidate until early 2021. Although the BTC is approaching its highest point, around $20,000, there are compelling reasons to expect more lateral actions.
Network analysts mainly explore two indicators to assess the sense of an ongoing high: the Spent Output Profit Ratio, or SOPR, and the MVRV of the long-term holder. The SOPR indicator shows whether short-term holders are selling at a profit or loss. If the SOPR increases, it means that investors are selling at a profit, which usually means there is room for a small correction. But if the SOPR decreases, it means that retail investors are probably being shaken, and a reversal of the trend to the positive side is likely.
The long term holder’s MVRV is an indicator that checks whether Bitcoin is over or undervalued. The MVRV divides the price at which investors are buying Bitcoin by its current market value. It allows the indicator to assess whether investors are accumulating BTC at an abnormally high price, making the high overheated. A rise becomes unsustainable if the MVRV is above 20.
SOPR and MVRV in action
Bitcoin is currently in an ideal position, where the SOPR indicator is signaling the probability of further regression to profit realization, while the MVRV is indicating a long-term high. This trend is positive for BTC, as it shows that the overall uptrend would probably be intact even if a short term correction or consolidation phases occurred.
Willy Woo, network analyst and creator of Woobull.com, said the SOPR has room to restart. Based on historical cycles, Woo noted that it may take until January to happen. Therefore, at least in the short term, Bitcoin’s probability of consolidating or stagnating for a longer period remains high. While this does not mean that BTC would see a significant correction, it could result in less volatility and a more cautious short-term price trend. Woo explained:
„Once the SOPR begins to decline, profit realization generates profit realization. We wait until all the investors with profit that are going to sell complete the sale, when this happens, the currencies in movement no longer generate profit, the SOPR goes to 1.0 and we can move forward. ETA January, maybe. “
A positive factor that could offset a potential SOPR-induced liquidation in the short to medium term is the MVRV of the long term holder. Glassnode analysts explained that the MVRV is far from the danger zone, which previously marked local tops. For example, when Bitcoin reached an all-time record in December 2017, the long-term holder’s MVRV exceeded 20. In contrast, this metric is currently around 3.
Both SOPR and MVRV suggest that Bitcoin is still in the early phase of its upswing cycle. SOPR is substantially smaller than where it was during the 2017 peak, similar to MVRV. This is in line with the narrative of a post-halving cycle, in which Bitcoin tends to peak 12 to 15 months after a reduction in the block reward occurs. If a cycle similar to that of the last halving in mid-2016 is repeated, BTC could peak by mid-2021.
Glassnode analysts explained that the MVRV index is extremely optimistic, adding: „When LTH-MVRV reaches the red zone (above 20), this usually indicates a global peak. But as we can see from the graph below, Bitcoin’s LTH-MVRV is still a long way from the red zone. ”
If the $20,000 rupture occurs an even bigger rally can begin
However, Bitcoin exceeding US$20,000 is a possibility in the short term. There are mixed opinions about what will come after BTC clearly breaks its record. Some believe there may be a peak in the range of $20,000 to $21,000, as the euphoria reaches its peak. Others say that retail interest in Bitcoin may begin.
There are two main reasons why interest in Bitcoin would increase after BTC reaches a new historic high. First, many retail investors lost large sums of capital in 2017, buying about $20,000. As such, the historical record remains an obstacle for many investors. Second, there is no historical ceiling for BTC above $20,000, so the period of price discovery is likely to be a bit long.
