Institutional demand for Bitcoin skyrockets while technicals point to a steep correction

By: Konstantin Anissimov
Konstantin Anissimov
Konstantin’s responsibilities at CEX.IO include customer relationships with institutional and VIP clients, overseeing the creation of the company’s development… read more.
on Dec 2, 2020
  • Bitcoin rose to a new all-time high as institutional demand skyrockets.
  • BTC is now regarded as a store of value asset amongst some of the world's most prominent billionaires.
  • Regardless of these positive developments, Bitcoin looks primed for a nosedive.

Bitcoin surged to a new all-time high for the first time since mid-December 2017. While interest among institutional investors skyrockets, a particular technical indicator points to a steep decline before further gains.

Institutional investors cannot get enough

Bitcoin used to be regarded as a speculative financial instrument used by retail traders to make a quick buck. This narrative was seen throughout the entire 2015-2017 bull run as prices skyrocketed nearly 10,000%. During this two-year period, the pioneer cryptocurrency went from a low of $200 to a peak of nearly $20,000. 

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Now, it seems like the on-going bullish cycle is driven by institutional investors who are using Bitcoin as a store of value. 

Legendary American hedge fund manager Stanley Druckenmiller is one of the many billionaires who have confessed to owning a significant number of BTC. Druckenmiller believes that this new asset class presents better safe-haven characteristics than gold as it is thinner and less liquid, with higher beta. 

The rising demand for Bitcoin among big players can be seen from an on-chain perspective as well. Ever since the ongoing uptrend kicked off in early October, the number of large transactions with a value of $100,000 or higher has seen a steady increase.   

On October 11, there were roughly 9,800 large transactions on the Bitcoin network. Today, this metric is hovering around 20,000 large transactions, representing a 105% upswing within this short period. Such an uptrend is a clear signal that confidence in BTC is rising among institutional investors. 

Despite the growing demand for the flagship cryptocurrency, a well-known technical index on Wall Street suggests that a correction is about to begin. 

Technical analysis: Bitcoin looks poised to correct

The Tom Demark (TD) Sequential indicator presented a sell signal on Bitcoin’s one-month Heikin-Ashi chart. The bearish formation developed in the form of a green nine bar. This type of technical pattern suggests that Bitcoin could be bound for a one-to-four-monthly-bar correction before the bull run resumes.

Based on historical data, the TD setup has been extremely accurate at predicting local tops on BTC’s trend. It even presented a sell signal in December 2017, just before the 2018 bear market began. For this reason, the current forecast must be taken seriously, despite the bullish price action seen over the past few months.

By measuring the Fibonacci retracement indicator from December 2018’s low of $3,150 to the recent all-time high of $19,837, multiple targets can be defined.

Based on this technical indicator, a spike in sell orders around the current price levels could push Bitcoin to $16,300. But if the selling pressure is strong enough, prices may drop towards the next critical area of support, around $13,500.

Even though the TD setup suggests that Bitcoin is ready to retrace, the recent high of $19,837 must hold to validate the bearish outlook. Failing to do so will likely lead to a spike in upward pressure fuelled by a state of FOMO among investors. Slicing through this resistance barrier could see BTC aim for $24,500, or even $30,000. 

Key price levels to watch 

Given the high levels of speculation around Bitcoin, it is not clear when a steep correction will take place. Back in 2017, when BTC was trying to climb above 2013’s all-time high of $1,200, it shortly breached this milestone, only to then take a 32% nosedive. If history repeats itself, similar price action may develop now. 

A 30% correction from the recent high of $19,837 could see the bellwether cryptocurrency dive towards $13,000 as mentioned in the previous analysis. However, too many analysts are paying attention to this fractal, which lessens its effectiveness. For this reason, it is crucial to wait for a daily candlestick close above the overhead resistance, as it may help invalidate the bearish outlook.

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