Bitcoin price fundamentals: bullish divergences may be pointing towards price increase
- How to follow a logical path through selecting the best cloud mining services in 2021? - July 15, 2021
- Staking VS other ways of earning on cryptocurrencies – what makes most sense - June 14, 2021
- Introducing SafeHamsters - May 27, 2021
In technical analysis a ‘divergence’ is when the price is moving one direction, but some indicator or signal is moving in the opposite direction. This can indicate that a possible reversal in the price trend may be about to take place.
I will be the first to admit that I am not any kind of expert in technical analysis, In fact I really don’t like it and although I do follow some TA guys on YouTube I don’t put too much weight on technical signals or indicators. But I do like to follow fundamentals, and I am noticing a divergence between the price trend and the trend in fundamental data for Bitcoin. I seems to me that perhaps this is signalling a possible price increase incoming, but if you disagree I would love to hear from any technical analysts out there in the comments about whether this kind of divergence can be used as an indicator of possible trend changes.
The divergence I am talking about relates to transaction and trade volumes, both of which are clearly showing a rising trend across time periods during which the price has been broadly flat.
Looking at the chart below we can see that trade volume across major exchanges has been trending upwards since early June when the price was hovering around $6500 – almost exactly the same level it is at today.
Looking at the number of transactions registered on the Bitcoin blockchain each day we can see what appears to be an upwards trend starting around early April 2018 and continuing to today. Strangely, the price at the time this trend seems to have started was also in the mid six thousands (USD).
Both charts seem to show a quite steady and ongoing upwards trend. You can compare this to the year-to-date price chart below:
What does this mean? Well I suspect what it means is that over the medium term the number of users and traders has been increasing while the price has not, and this could indicate the presence of pent-up energy in the form of additional demand just waiting to push up the price. If transactions and trading volume continue to climb I would say there is a great chance we could see a healthy price increase over the medium term. If you combine this with the fact that the number of Bitcoin shorts are currently at near all-time highs, we also have the potential for another ‘short squeeze’ to amplify any price increases over the short-term as well.