By Jamie Holmes
Bitcoin price volatility has tempered somewhat in recent days and points to an explosive move in the days or weeks ahead. A major upcoming catalyst for Bitcoin is the activation of Taproot. Coupled with an improvement in on-chain metrics, we could see Bitcoin push to new highs in Q4 and take aim at the $80,000 handle. On the other hand, the downside for the largest crypto seems limited to the $60,000-$58,000 zone.
Bitcoin’s On-Chain Metrics Paint a Bullish Picture
In recent weeks, the fundamentals for Bitcoin have improved with the number of active addresses rising to highs not seen since May 2021. The 7-day moving average of active addresses on the Bitcoin network (shown below) has regained the critical 1 million level and if the upward trajectory continues, then this should be bullish for the price action. Despite testing new highs, the number of active addresses has not yet surpassed the peak seen during May 2021 (above 1.2 million).
Source: CoinMetrics
While the value of transfers facilitated by the Bitcoin network has fallen throughout October, this on-chain indicator is at higher highs as compared to April 2021 which is a bullish sign. With more people using the network to transfer value, we’d like to see the 7-day moving average of the transfer value start rising again and remain above the April 2021 high of around $17 billion for a bullish outlook. However, if we see a dip below April’s high, then it could be a sign that the network usage will start to slow and hence act to dampen the price of bitcoin.
Source: CoinMetrics
Volatility at 1-Year Low According to Bollinger Bandwidth
The daily chart for BTC-USD below shows that volatility is at the lowest level, as indicated by the width of the Bollinger Bands. This is a cue for traders to start paying attention and get ready to position themselves. A contraction in the bands tells us that volatility is low and that we should anticipate an uptick in the price volatility soon.
Usually, when the bandwidth is at multi-month lows, we often see a breakout follow shortly thereafter. For example, the last time the Bollinger Bandwidth was as low as it is currently was during October 2020 where bitcoin was trading just below $12,000 and went on to reach highs near $16,000 by early November 2020.
Source: TradingView
With the upcoming Taproot upgrade estimated to go live on the Bitcoin network on November 14th, the return of volatility to the bitcoin market could well see a breakout to the upside. Optimism surrounding the added functionalities on the Bitcoin network due to Taproot (such as improved scripting for smart contracts and better payment policy privacy) could well push the price higher as the leading cryptocurrency garners more mainstream attention.
The lower Bollinger Band currently stands at $58,744 (highlighted with the arrow on the chart above) and provides a potential buy zone if the market heads south. Typically, when the price tags the lower band, it is a good opportunity to buy (as seen in late September when the price tested the lower band several times at $40,800 and then went on to increase to $50,000 in the week that followed. Therefore, traders could look to enter long positions if the psychological levels at $60,000 or $59,000 level are tested, as well as the lower Bollinger Band at $58,744.
Bitcoin Fails to Hold On To Gains Above Previous ATH
A few weeks back, Bitcoin posted fresh highs above $66,000 on October 20th and briefly surpassed the previous all-time high posted on April 14, 2021. However, the leading digital currency failed to hold onto these gains and has since dipped back below April’s high of $64,900.
A bearish engulfing candlestick pattern from October 21 can be observed on the chart below, and since then, the price has trended lower, bouncing from the $58,000 level more recently. The bullish scenario for Q4 is that Bitcoin pushes higher above $67,000 into fresh territory and tends towards the Fibonacci extension level at $79,874.30 (highlighted on the chart below).
Source: TradingView
The other potential scenario implied by the chart above is that if bullish momentum stalls, the price of bitcoin is likely to head lower towards the nearest Fibonacci retracement level, acting as support near $52,000.
Strong Bidding Interest Seen at $60,500/$60,000
Looking at the 4-hour chart with order book data for the Coinbase exchange, we see buyers have put up large bids for BTC-USD at $60,500 and $60,000.
Source: TradingLite
Watch how the price behaves if these key levels are reached as the buying interest could very well lead to a reversal of any downward price action. However, if the market breaks through these buy walls, then the next important area of bids is found at $59,000. To the upside, selling interest is seen at one thousand dollar intervals from $64,000 upwards.
Ethereum Experiences First Week of Net Negative Issuance
Ethereum experienced its first week where the issuance burned exceeded the amount of ETH mined. As part of the EIP-1559 upgrade, the base fee is now burned instead of going to miners, creating deflationary pressure for the second largest cryptocurrency. As the amount of ETH burned started to outpace the number of freshly mined ETH, the price of ether hit fresh all-time highs on November 3 reaching $4,670.98.
The chart below shows that the next target for bulls is at $5,156,55 which is the first Fibonacci extension level. The caveat here is that the price needs to remain above the previous all-time high of $4,384 to increase the likelihood of reaching new heights above $5,000.
Source: TradingView
However, unlike Bitcoin, the bandwidth is not at multi-month lows for Ethereum and the price is currently near the upper Bollinger band, suggesting a pullback is likely. The middle Bollinger band provides support near $4,200 while the upper band provides resistance at $4,694.
Source: TradingView
The order book data from Coinbase shown by the chart below also shows that $4,200 is an important level to watch as strong bidding interest lies at this level. Just recently, a buy wall was put up at $4,440 which could act as an important support level going forward.
Source: TradingLite
Buyers are also waiting to get in on ETH at the psychological $4,000 while strong selling interest is seen at $5,000. If the market manages to push through the sell wall at $5,000, there’s not much selling interest until the $6,000 level.
Solana at Fresh Highs: A Move to $335 Next?
Solana flipped Cardano recently in terms of market cap to become the fifth largest cryptocurrency and reached a fresh all-time high of $250.50 on November 4th.
The chart below shows that SOL-USD closed above the previous all-time high of $216 on November 2nd and has started to extend to the Fibonacci level at $268.74. A further extension level is seen at $335, so as long as the market remains above $216, then SOL is likely to tend towards $270/$335.
Source: TradingView
However, the price of Solana is near the upper band so we may see a pullback with the middle band providing support just below $200 which may provide a good opportunity.
The order book data for SOL-USD on the Coinbase exchange is shown below with $250 being a key area of seller interest while bids are stacked at $220. The chart below shows that the price bounced down from $250 as the sell orders at this level were absorbed by the market but there was no follow through.
Source: TradingLite
Another good entry point into the ongoing uptrend apart from the buy wall at $220 is the lower Bollinger band, currently at $215. Also, if the price manages to remain above the middle band at $233, then this may be a sign of bullish continuation and we could see another test of the psychological $250 handle.
