Bitcoin (BTC) price fell to $ 16,000 on major exchanges after hitting $ 16,480 on Nov. 14. Although BTC price has seen a nearly 3% drop in 24 hours, retesting is healthy for the ongoing rally.
The 15-minuteprice chart of Bitcoin. Source: BTCUSD on TradingView.com
Reasons why the drop to $ 16,000 could actually benefit Bitcoin
Retesting the $ 16,000 level benefits Bitcoin for three main reasons, as there are numerous data points in the chain, such as: B. stable Bitcoin inflows, make a bigger rally more likely.
First, if BTC bounced back to $ 16,000 in the short term after its minor decline, it would confirm the $ 16,000 area as the support level. Even during the parabolic uptrend in 2017, when BTC price hit $ 20,000, the dominant cryptocurrency struggled to establish $ 16,000 as a support level. This was because the rally was happening so quickly and there was no consolidation over the area.
Second, whales or high net worth individuals have been selling continuously for the past few days. With heightened selling pressure in the market, minor declines are healthy for a sustained BTC price rally.
Third, the pullback would further neutralize the derivatives market, including futures and options contracts. Before the decline, the refinancing rate of BTC futures was around 0.01%, which is an average rate. After the decline, the funding rate would neutralize even further, making the ongoing rally less crowded.
BTC price now in the “safe zone” after the whales complete the sales cycle
Ki Young Ju, the CEO of CryptoQuant, a market research firm in the chain, reported on Nov. 12 that whales are selling Bitcoin. At the time, Ju said:
“We could make some $ BTC corrections here as the Exchange Wale Ratio (24h MA) is over 85%, but I don’t think it will be mass dumping.”
Since then, whale inflows into the exchanges have declined and stabilized. This means that whales have started to sell less bitcoin, which puts less selling pressure on the market.
“We have come back to the safe zone. The $ BTC correction was smaller than I expected. Obviously the bull market will continue until this exchange whale ratio is between 85 and 90%, ”Ju said on November 13th.
With fewer large sellers in the market, especially as Bitcoin begins to rebound from its $ 16,000 support retest, the upward momentum in BTC price could pick up again.
There are also a plethora of positive fundamental factors that could catalyze Bitcoin in the long run. For example, the Federal Reserve said it would maintain its average inflation policy through 2024.
“The Federal Reserve expects interest rates to stay in the 0.00-0.25% range through 2024. Since inflation is positive, this will lead to negative real short-term interest rates for the foreseeable future, ”wrote economist Alex Krüger.
In addition to the bullish fundamental and technical factors propping up BTC price, favorable macro factors would also fuel Bitcoin early in 2021.