On Thursday, Bitcoin hit the $72,000 price level for the first time since June. While optimism in the wider crypto market has definitely surged – and justifiably so – on-chain metrics are yet to confirm a total bullish reversal in sentiment.
Bitcoin bulls should not get too excited
On Wednesday, BTC finally left the seven-week range between $62,000 and $65,000, closing the day near $69,300 after hitting a high beyond $70,000 earlier in the day. The demand was definitely there, with trading volume on exchanges surpassing that seen in prior sessions.
That said, there still remains some scope for improvement on the supply side. Specifically, from August 13 to August 19, crypto wallets holding more than 100 BTC added only about 1,000 coins.
Meanwhile, mid-sized wallets – holding 50-100 BTC – added close to 1,700 coins during the same period. Retail balances were effectively unchanged, showing that small investors are yet to join in the trade.
At the same time, the Bitcoin spent output profit ratio, or SOPR, printed just above 1 for a single day, instead of a multi-day hold. It means that while short-term coins were spent in profit, longer-term coins were still spent at a loss.
For the uninitiated, SOPR measures whether Bitcoin coins being moved are, on average, being sold at a profit or a loss compared with their previous purchase price. A reading above 1 indicates coins are being spent at a profit, while below 1 indicates they are being spent at a loss.
While the break of the price range is real, it is still lacking confirmation of a new trend. Unless the SOPR continually holds above a reading of 1, it cannot be convincingly said that BTC has embarked on a new bullish rally.
A real rally or a bull trap?
While some crypto enthusiasts suspect that BTC’s recent move above $70,000 might be yet another bull trap, recent data suggests otherwise.
From an on-chain perspective, BTC is seeing fewer short-term holders compared to long-term holders, suggesting organic demand for the cryptocurrency.
Further, declining liquidity has introduced ripe conditions for an explosive move for BTC, as the market saw on Wednesday and the early hours of Thursday.
The digital asset is also showing signs of maturity, with each cycle pullback becoming increasingly more shallow than the previous.
