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Bitcoin analyst says ‘provide shock’ underway as BTC withdrawal fee spikes to one-year excessive

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As Bitcoin (BTC) moves sideways in the $ 30,000 to $ 40,000 range, new data emerges on the potential for a bullish breakout.

Is Bitcoin silently preparing for an outbreak like the fourth quarter of 2020?

Willy Woo, an on-chain analyst, anticipates a potential supply shock in the Bitcoin market as long-term owners continue to siphon BTC supply from short-term ones. Woo stated in his July 2 newsletter that the process could take more Bitcoin out of circulation.

Pointing to the ratio of bitcoin held by strong hands to weak hands – also known as the bitcoin supply ratio – the analyst noted that the former is actively absorbing selling pressure from whales, which have been shedding their crypto holdings since February.

The availability of BTC on exchanges is decreasing in relation to supply (blue), resulting in supply shock (green). Source: Woobull

“It reminds me of the supply shock that went unnoticed by the market in the fourth quarter of 2020,” Woo wrote. “Experts debated whether BTC would be an inflation hedge in a post-COVID world when the data indicated that long-term investors are piling BTC at a rapid pace.”

The price then collapsed and very quickly broke away from its close correlation with stocks.

New active users increase

Another on-chain data analytics service, Glassnode, has also increased the booming outlook for Bitcoin adoption. The portal announced that the Bitcoin network is taking on an average of 32,000 new users every day, which is a new high by 2021.

The Bitcoin network user growth metric reflects the increasing adoption rate. Source: Glassnode

The Bitcoin network user growth metric last peaked in January 2018, hitting around 40,000 before being revised down alongside prices. It was revealed that no more new users came to the Bitcoin network when the price plummeted from $ 20,000 in January 2018 to $ 3,200 in December 2020.

“It’s not the structure we’re seeing right now,” explained Woo. “New users take this opportunity to buy the dip; they come at the highest rate seen in 2021.”

Yet another example of on-chain data showing a deviation from the price action.

Bitcoin is currently below $ 34,000 at the time of publication, up 17.52% from its previous low of $ 28,800 on June 22nd.

Meanwhile, Petr Kozyakov, co-founder and CEO of the crypto-enabled payments network Mercuryo, believes Ethereum could steal the spotlight from Bitcoin in the short term if the London hard fork approaches.

“The planned rollout of the London Hard Fork upgrade and the final migration to Ethereum 2.0 are helping to renew investor confidence,” he added. “As soon as the hype subsides, Bitcoin could rise to as much as $ 50,000 in the short to medium term.”

Bitcoin payout transactions hit an annual high

Data analytics firm CryptoQuant reported Tuesday that the number of net outflows of Bitcoin transactions from spot exchanges exceeded the 60,000 mark for the first time in a year. Meanwhile, the total number of Bitcoin deposits in the wallets of the spot exchanges fell to below 20,000.

Number of Bitcoin spot exchange inflows and outflows. Source: CryptoQuant

The BTC payout rate rose during the period that regulators also stepped up their scrutiny of cryptocurrency trading platforms. For example, the British Financial Conduct Authority (FCA) banned Binance – the world’s largest cryptocurrency exchange by volume – from operating regulated activities in the country “without prior written consent”.

On Monday, Barclays told its customers, citing the FCA’s order, that they could no longer transfer funds to Binance. However, the London-based bank said customers could withdraw funds from Binance to their bank accounts.

On Tuesday, the People’s Bank of China also took action against a local company for allegedly trading cryptocurrencies on the sidelines of their regular business activities. Beijing effectively banned all kinds of cryptocurrency-related activities in May, forcing the world’s largest crypto mining community in its regions to either close or relocate abroad.

Generally, an increase in Bitcoin payout rates is seen as the intent of traders to hold the cryptocurrency rather than exchange it for other assets, including competing cryptos and fiat money. With BTC withdrawals hitting a year high overall, expectations therefore remain higher as Bitcoin prepares for another upward trend in so-called “hodling” sentiment.

No Looks like retail is back and #HODLing!

– Johan Kirsten (@ JohanKirsten1) July 6, 2021

But the total bitcoin reserves held by the exchanges have remained relatively stable since May, suggesting that the recent surge in withdrawals as of July 7th had little impact on the total stock market balance.

BTC credit on the exchanges. Source: Bybt.com

It’s worth noting that the exchanges’ BTC balances can vary widely due to their geographic dominance.

For example, trading platforms associated with China and Chinese traders reported a decline in their Bitcoin balances. These include Binance, whose BTC reserves have dropped 7,214.97 units in the past week, and Huobi, which processed withdrawals of 4,398.63 BTC over the same period. OKEx’s BTC balances dropped by just 1,357.53 BTC.

However, US-based Kraken has added 6,751.98 BTC to its vaults in the past seven days, the highest among non-Chinese exchanges, while Coinbase’s reserves have increased 168.88 BTC.

The views and opinions expressed are those of the author only and do not necessarily reflect the views of Cointelegraph.com. Every step of investing and trading involves risk, so you should do your own research when making a decision.

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