Bitcoin Price Forecast
Global Liquidity, On-Chain: Supply & Demand
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While Bitcoin’s price is affected by many variables, on-chain analysis brings lots of alpha as it allows us to have an incredibly useful overview of bitcoins current situation. It allows us to look at actual supply and demand levels — and price is a function of supply and demand.
Together with analyzing the macroeconomic circumstances (relevance discussed in 👉 Previous Newsletter) we can provide a likely path for Bitcoin’s near future.
Spoiler: we cannot expect too much from Bitcoin in the near term, however, enormous opportunity is developing.
Let’s look at the three main conditions that affect Bitcoin’s near-term price.
Decreasing liquidity: ⬇️ Downwards pressure on price
Low/Baseload demand levels: ➡️⬇️ Horizontal/downward pressure on price
Decreasing available supply: ⬆️ Upward pressure on price
1. We’ll start with the macroeconomic condition we find ourselves in — contracting liquidity. Quantitative Tightening due to the Fed and other central banks have created less favorable conditions for risk assets. There is a strong correlation between global liquidity and the performance of risk assets. Generally increasing liquidity concurs with an increase in risk appetite while contracting liquidity has the opposite effect. This puts downward pressure on Bitcoin’s price.
While current conditions aren’t ideal for risk assets, history shows that central banks can’t behave well for very long, it’s only a matter of time before printers go Brrr, the signs already start to appear.
2. Low levels of new demand. On-Chain analysis allows us to look at the age of coins and divide Bitcoin’s supply into Short-Term and Long-Term Holders. Short-Term Holder (STH) Supply can be seen as a proxy for fresh demand coming into Bitcoin. A heavy increase in STH Supply means a lot of young coins are moving, indicating new people entering the space. Peaks in STH Supply align with All-Time-Highs (blue dots) as can be seen in the graph below.
👆 Chart now live available at Platform.
Currently, we find ourselves at very low levels of new demand / near to what seems to be a baseload. Fresh demand at a low, puts at least horizontal if not downward pressure on price. It’s noteworthy that current level is common in this phase of the Bitcoin cycle.
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3. We discuss the most underrated On-Chain bullish divergence.