New Demand Expected To Change Bitcoin's Market Structure Significantly

Bitcoin has been witnessing a renewed short-term market recovery characterized by new demand from a category of new investors expecting to make some money from the current price pump.

According to a recent on-chain metrics analysis by Glassnode, this is likely to spark a new market cycle and see Bitcoin moving further away from the prolonged bear trend, albeit in the short term. The analysts said that currently, there is a significant rotation of capital from some long-term Bitcoin holders who are in their last phase of holding coins to a new cohort of buyers willing to acquire Bitcoin.

“This market phenomena has been strikingly consistent across prior bear markets, with large inflections in capital rotation signaling a significant change in market character and structure.”

At the same time, a small section of long-term Bitcoin holders who purchased their coins during the last phases of the bear market (after the April 2021 exit liquidity events) will also be encouraged to spend their coins if prices continue to increase. At the moment, though, they are sitting their coins only at a minimal unrealized profit. However, most long-term holders have continued to take losses for nine months since the collapse of LUNA and FTX.

Bitcoin started to record a significant increase in price in mid-January and has so far pumped from below $17,000 to a new year-to-date high of $24,157 attained on February 2. It was trading at $21,616 as of this writing. The price movement is currently quite sideways and uncertain, though in favour of the bulls for at least in the short term. According to some analysts, the current price channel break and retesting period are highly likely to see the price way down to $20,000 to $21,000 levels.

Strong demand from new investors usually sparks prolonged and significant price pumps. As to whether the current demand from the new investors is strong, analysts from Glassnode do not appear to say it is, at least in the short term. Their analysis reveals that it may impact market structure if its current form is sustained.

Furthermore, it is expected that the price of Bitcoin will still record more retracements and higher lows followed by a higher high to confirm a significant uptrend. In other words, Bitcoin could still record lower prices than the current $21,616 before pumping higher. Many experts believe it is hard for bear markets to end without such behaviour.

Regarding the potential long-term impacts on cryptocurrency prices, FED said yesterday that although a disinflation process had started, it will require more hikes in interest rates. Higher interest rates are likely to pull down prices, but the disinflation process will likely pull them up. In addition, data from CoinShares shows that institutional investors pumped $117 million into digital assets in January, which led to a 43% increase in total assets under management between January and November.

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