Bitcoin Price Prediction: Fundamental Metrics Point To Bullish Surge Soon

The dominant cryptocurrency’s on-chain metrics are suggesting a convincing resumption of the Bitcoin rally soon. However, macro factors, such as the increasing strength of the dollar, could buoy this.

The most important factor — the demand for Bitcoin — has continued to outstrip new supply. Around 900 BTC are mined every day. This translates to 27,900 BTC mined in January. Grayscale Holdings, which caters to institutions, bought over 40,000 BTC in the same period, Glassnode reported.

Late last year, crypto hedge fund Pantera Capital reported that PayPal and Square's Cash App bought all the newly mined BTC. If such activity continues, there won’t be many existing BTC left to cater to the increasing demand.

The number of Bitcoins held in exchanges has also decreased to a level not seen in the last two and a half years. While not definitive, BTC outflow from exchanges suggested users are keeping the BTC on their own storage and are not planning to sell them anytime soon.

Additionally, the number of Bitcoin whales continues to increase. "Whales" refer to Bitcoin holders whose wallet addresses have at least 1,000 BTC. On Sunday, this number increased 2,218, increasing by 50 after Bitcoin went through a brief consolidation period.

According to Alex Kruger, a cryptocurrency trader and founder of Aike Capital, Bitcoin’s adjusted spent output ratio (aSOPR) appears to suggest that holders are not selling en masse anytime soon. Since all indications predict a resumption of the rally back to $40,000, more investors will be keeping their Bitcoins for now.

“The breakout may happen in two weeks; everything is bullish now,” Kruger told Coindesk.

Bitcoin closed Tuesday at $35,512 on Coinbase and appears to still be in consolidation mode. It has not been in oversold levels since Jan. 11 based on its relative strength index (RSI), a technical indicator.

One key macro event that could hinder Bitcoin’s upcoming rally is the increasing strength of the U.S. dollar. The Dollar Index (DXY) recently printed an inverse head and shoulders (H&S) breakout, which is a major bullish pattern. This indicates that sentiment around the greenback, which has been embattled due to the pandemic and the political uncertainty of 2020, appears to be changing.

“If a bullish trend develops from DXY’s latest breakout, it could be a problem for Bitcoin,” Kruger concluded.