Market forecast: Bitcoin breaks $40k as "mega whales" finish selling, so what's next?

Hi Frens,

as always, the market newsletter is split into two parts: Bitcoin outlook by Joseph and on-chain analysis by Cole.

If you want access to the exclusive interviews with top traders and industry executives, our research about DeFi and crypto trends, and the additional DeFi letter, you will need to subscribe. But have no fear, it’s only $14.99 a month, or $139.99 a year. Get yourself a belated holiday present and subscribe to Alpha Alarm today.

It’s literally the cost of one Uniswap trade a month or a few Starbucks coffees - it’s cheap.

We’re going to release a deep dive into Asia’s crypto exchange market and retail demand. You don’t want to miss this.


Tl;dr

Market sentiment check: very optimistic, price discovery imminent

Positives:

  • Large stablecoin inflows show sidelined capital moving back into Bitcoin

  • Large Coinbase outflows show high-net-worth investors are accumulating Bitcoin

  • Reclaiming $38,000 confirmed a breakout, technically a cup & handle formation and a bull flag breakout

  • The selling pressure from “mega whales” exhausted since late January

  • Bitcoin exchange netflow is declining, which means BTC is flowing out of exchanges

  • Miners sold a lot of Bitcoin last week, so less selling pressure

Negatives:

  • Whale clusters at $36k and $38k could potentially cause a dip

  • $42,000 a major resistance level as it is the all-time high

Key Bitcoin price levels [Binance heatmap & technical levels]

  • Support levels: $40,200, $38,800, $36,600.

  • Resistance levels: $41,000, $42,000

One liner thought on the market: The breakout above $38,000 was crucial. I am expecting Bitcoin to steadily rise to $56,000~$63,000 in the foreseeable future.


Overall thoughts on the Bitcoin and crypto market

Bitcoin is breaking out.

It reclaimed $40,000 for the first time in 23 days, gaining significant momentum from a relief rally since it dropped hard eight days ago.

The technical structure of Bitcoin is very bullish with on-chain data and fundamentals to back it up.

I see Bitcoin kickstarting a new rally, as it did in December 2020. I fully expect Bitcoin to surge towards $56,000 next in the interim, as the next short-term target.

Some believe this Bitcoin rally would cause the “altseason” and the DeFi season to end. I disagree here.

We have seen profits cycle from Bitcoin to DeFi and vice versa in very quick succession.

For example, if Bitcoin rallies for about 4 hours, after the rally, DeFi would begin to pick up steam right away. Cycles are being played out in a sped-up way.

I think Bitcoin and DeFi would rally in tandem over the next week, given the unprecedented interest in the DeFi market.

Fundamentally and technically, SUSHI, AAVE, ZRX, ALPHA, and SNX seem to have the biggest momentum.


On-chain indicators and data recap

There is no big reason to expect a Bitcoin pullback at this point.

There is not a lot of Bitcoin on exchanges. There is a big increase in stablecoin inflows. Big rise in Coinbase outflows. The combination of these data points suggests one thing: accumulation.

There is a supply-side crisis ongoing. The institutional demand for Bitcoin is unprecedented and there is simply not enough Bitcoin out there. It’s that simple.

Then we got MicroStrategy and Michael Saylor talking to thousands of corporations and convincing them of the merit of Bitcoin.

On top of the large demand for Bitcoin, there is also not a lot of unrealized profit in the market.

The SOPR indicator measures how much unrealized profit investors are sitting on. If the SOPR is high, the probability of a correction increases.

The SOPR indicator is nowhere close to the levels that marked previous tops, like the July 2019 top.

This means Bitcoin has a big room for another massive rally.


Key technical levels and structure

Bitcoin is undoubtedly bullish at the moment, and there are three key levels to consider.

If Bitcoin breaks above $42,000, it is price discovery and there is no ceiling. So, $42,000 is naturally an important resistance level, with $40,000 and $38,000 as support. These three levels will determine Bitcoin’s short-term price cycle.

I expect Bitcoin to blast through the $42,000 resistance level this time around. Why?

Mega whales sold off significantly during the last week of January.

A lot of the selling pressure on Bitcoin that previously existed is no longer here.

Technically, $36,600, $38,800, $40,200, and $42,000 are the key levels to consider.

The Binance orderbook (Bitcoin to Tether) shows $41k and $42k as heavy resistance areas.

But, for me, this trend is very similar to the December 2020 cycle. At the time, there were heavy sell orders stacked at $30,000. But, Bitcoin blasted through it with strength. I expect a similar trend to occur.

On the chart below, bright red lines are sell walls. So, $41k and $42k are the big sell walls on Binance at the moemnt.

So to recap:

Key resistance levels: $41,000 and $42,000
Key support levels: $40,200, $38,800, and $36,600


What top traders think

High Stakes Capital: [Top trader on FTX leaderboard] “Stablecoins increase on all exchanges. Bitcoins decrease on all exchanges. Big withdraw from coinbase pro still on. New adr w >1000 btc still increase But pls, carry on your euphoria, I want to add”

Alex Wice: [Top trader on FTX leaderboard] “Go On And Sell Your $40,000 Level, Sonny Apes Strong Together Quote Tweet”

Ki Young Ju: [CryptoQuant CEO] “15k Coinbase outflow at 37,413. It seems like lots of OTC deals are on-going lately.”

Bitcoin Jack: [Predicted $4k bottom, called $19k rally] “January Bitcoin spot trading volume was some of the highest ever recorded: creating a rock solid floor if continuation confirms January likely printed the 2021 low and I it's unlikely price will ever cross below it ever again.”

Kyle Davies: [co-founder of top crypto fund Three Arrows Capital] “No resistance at 40k, shorters must be broke $BTC”


In short, bullish.