Bitcoin looks ready for a breakout

Unlike 2021, 2022 has started off on a whimper for cryptos like Bitcoin (BTC) and Ethereum (ETH), which have been trapped for months in a relatively narrow trading range.

BTC is poised for breakout, but which way? Crypto research company Glassnode points to several bullish indicators:

• A 23% year-on-year growth in Bitcoin wallets and a total of nearly 40 million wallets holding a positive balance, which is 40% more than at the end of 2017;
• There are signs that BTC holders are reluctant to sell. More than half the coins in circulation are now inactive for more than a year – a sign that of patience on the part of buyers; and,
• Even as prices corrected from all-time highs in 2021, there was an accelerating trend from liquid to illiquid wallets – meaning weakening selling pressure as buyers appear ready to hold for the long-term.

The news is not all positive, however. BTC’s inability to hold above $50 000 (it traded this week at just above $47 000) signals lacklustre demand at the tail end of 2021, a trend that carried over into the new year.

Plan B, which created the stock-to-flow model as a way to help predict BTC prices, says while most people fear further declines in the BTC price, the stock-to-flow model shows the price at the low end of the $50 000 – $200 000 band, which is a buy signal.

The stock-to-flow model was originally applied to gold and silver and has now been applied to crypto. The model compares BTC’s current stock of coins to the rate of new production. The resulting ratio has been remarkably accurate in predicting prices, though less so in the last couple of years.

The Crypto Fear & Greed index remains stuck between “fear” and “extreme fear”, which is often een as a buying opportunity, though a recent newsletter from AuBit sees this as a sign that sentiment “is somewhere between ‘bull market over’ and pure apathy at this point. Retail has been a state of perpetual fear, which may imply we’ll have a market dump to clear out the lows.”

“BTC scenarios have changed a bit. BTC will probably test $37k and hopefully not $24k. It should be a great buying opportunity in all cases to start buying from about here down. Rejection of $50k kind of confirmed that 2022 is not going to start out strong. Yearly targets show this year will likely be consolidation, unless we break well above $100k,” says AuBit.

As Coindesk notes, Bitcoin tends to fall in January, a month that has clocked up an average return of -3.3% over the last nine years.