Bitcoin In “A Strong Position To Trend Higher” Due To Ongoing Supply Shock And Increasing Demand: Report

“Renewed demand for BTC is increasingly clear,” as per different metrics while USD rebounded sharply today after its weakest one-month level on Friday, with the Fed expected to begin tapering from next month.

Bitcoin miners are accumulating more and more of the leading cryptocurrency, driving a supply shock, powering its rally, according to a report by the research arm of cryptocurrency exchange Kraken.

In its latest report, the exchange said that long-term holders and whales, along with crypto miners, are behind the ongoing supply shocks.

The report said that these long-term holders continue to hold onto their Bitcoin stash unperturbed by the drop in Bitcoin price in September or the surge in prices in October. Instead of reacting to the prices, they keep on accumulating Bitcoin.

An indicator called the o-hop supply that determines whether the miners are holding onto the coin they have mined has also risen about 50% since last month. Not just large-scale entities but even smaller miners and players are also beginning to hold, which can further exacerbate the short supply, said Kraken.

Renewed Demand Is Clear

The largest publicly traded miners, including Riot Blockchain, Marathon Digital, and Hut 8, have reported hoarding Bitcoin they mined last month. Some of the mines are even using these BTC to boost their balance sheets and funding.

The supply shock and the increased demand “put BTC in a strong position to trend higher,” Kraken wrote. One metric further shows that bitcoin sits below the halfway point between overbought and oversold territory, “suggesting that there's still room for BTC to run,” it added.

This month, Bitcoin has rallied 42%, putting in a new all-time high at $67,000 in anticipation of the launch of the first Bitcoin ETF in the US. As of writing, BTC/USD is trading around $61,300.

“Validating the uptrend and highlighting strong demand for BTC, the excitement in the market is evident across several metrics and indicators.”

“Renewed demand for BTC is increasingly clear when looking at active addresses, new addresses, transaction count, velocity, and other metrics.”

Hedge Funds Go Record Short

Meanwhile, bitcoin net shorts hit a new record this week, but given that institutional investors always hedge their bets, these hedge funds whose short positions have climbed to $2.84 bln are also long Bitcoin.

According to crypto exchange OKEx, retail, however, is favoring longs. The BTC long/short has been keeping above 1.0 after first testing it last week.

“The ratio is bullish now and shows that retail investors are starting to believe in the possibility of higher prices in the near future. As long as this trend remains above 1.0, we can expect BTC to remain on an uptrend.”

This can also be seen in the basis for BTC futures contracts which has seen a minor retreat in line with Bitcoin’s price sliding from its ATH.

Time To Settle Down

Interestingly, the US dollar also weakened to its lowest level in a month due to a stronger euro on the back of earlier the expected hike in European interest rates. But today, in a sharp rebound from yesterday’s weakest level of 93.284, the greenback went up to 94.3 and is currently at 94.13.

This week, billionaire hedge fund manager Bill Ackman also called for the Federal Reserve to begin raising interest rates “as soon as possible” and start tapering its monthly asset purchases “immediately.”

Ackman further said on Friday that in response to this, they are hedging their exposure to an upward move in rates, “as we believe that a rise in rates could negatively impact our long-only equity portfolio.” He said,

“We are continuing to dance while the music is playing, and it is time to turn down the music and settle down.”

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