Quant Explains Similarities Between Current And Summer 2020 Bitcoin Markets

 Quant Explains Similarities Between Current And Summer 2020 Bitcoin Markets

A quant has pointed out some similarities between the current and summer 2020 Bitcoin markets through on-chain data.

Bitcoin Exchange Supply Shock Ratio Has Rapidly Risen Recently

As explained by an analyst in a CryptoQuant post, there seem to be some similarities between the current market trend and that during the summer of 2020.

The “exchange supply” is an indicator that measures the total amount of Bitcoin present on wallets of all exchanges.

This supply is usually assumed to be the selling supply of the crypto as investors generally transfer their coins to exchanges for selling purposes.

The supply in cold wallets of investors, on the other hand, is likely being held for accumulation, and is unlikely to be sold.

The ratio between this investor wallet supply and the exchange reserve is called the “exchange supply shock ratio.”

When the value of this metric goes up, it means the supply on exchanges is dropping and investors are filling up their cold wallets.

Related Reading | Bitcoin Futures Basis Nears One-Year Lows, How Will This Affect BTC?

On the other hand, a downtrend suggests a push to sell from sellers as they deposit their Bitcoin to centralized exchanges.

Now, here is a chart that shows the trend in the BTC exchange supply shock ratio over the past couple of years:

Bitcoin Exchange Supply Shock Ratio

The value of the indicator seems to have been on the rise recently | Source: CryptoQuant

In the above graph, the quant has marked the relevant trends of similarity between the Bitcoin markets of summer of 2020 and of right now.

It looks like during both the periods, the price was trending down or moving sideways, while the exchange supply shock ratio had been rapidly going up.

Related Reading | Institutional Investors Bearish On Bitcoin, Ethereum. Here’s What They’re Buying

Despite the struggling price at the moment, investors have showed demand for the crypto as they have been rapidly accumulating recently (similar to back then).

What followed a few months after the summer of 2020 was the start of a new Bitcoin bull run due to the resulting “supply shock.”

The BTC price is heavily tied to the stock market currently, and the analyst believes it’s possible that once it decouples, a similar shock could be there this time as well.

BTC Price

At the time of writing, Bitcoin’s price is trading around $39.8k, down 7% in the past week. Over the last month, the crypto has lost 15% in value.

The below chart shows the trend in the price of the coin over the past five days.

Bitcoin Price Chart

The price of the crypto looks to be steadily climbing back up after the plunge down a few days ago | Source: BTCUSD on TradingView
Featured image from Unsplash.com, charts from TradingView.com, CryptoQuant.com

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