For analysts and investors alike, understanding the variables that influence price action in the complex world of cryptocurrency markets is essential. Ali Martinez, a well-known cryptocurrency expert, recently provided this insights in the fluctuations in the price of Bitcoin by applying the fundamental economic theory of supply and demand.
Understanding Bitcoin Prices Through Supply and Demand
It is worth noting that the price movement of any asset, including cryptocurrencies, is determined by the fundamental rules of supply and demand. The price of an asset tends to fall when supply exceeds demand, while prices tend to rise when supply cannot keep up with demand.
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Thus, Ali Martinez inferred the price of the crypto asset and the behavior of its holders by applying the method and other on-chain metrics. Martinez’s analysis shows how fluctuations in buying interest in the market and the availability of Bitcoin are key factors that influence the price trajectory.
According to Martinez, Bitcoin’s Realized Cap witnessed a significant increase in mid-March as BTC hit a new all-time high of $73,000. This indicated that the majority of long-term holders of BTC were likely making profits at the time.
As a result, several investors sold their holdings, leading to a sharp increase in realized profits. After the gains realized in March, long-term holders felt safe to top up 70,000 BTC to their investments at these prices.
Meanwhile, as the growing supply of Bitcoin in the market exceeded demand, the coin saw substantial value correction from the $73,000 level to the $57,000 level.
Since short-term holders are more likely to sell their holdings due to price volatility, this drop pushed Bitcoin below the realized price for short-term holders, causing fear in the market. However, despite investor concerns, the short-term holder’s realized price at the $65,500 level acted as an accumulation point.
Based on this principle, Martinez believes that the likelihood of Bitcoin continuing its upward trajectory will only increase when demand for the cryptocurrency begins to exceed the supply of BTC available in the market.
Using BTC on exchanges to support the principles
Martinez has highlighted that the available BTC on crypto exchanges can be used to confirm these supply and demand laws. He further noted that in May, more than 30,000 BTC were moved to private wallets for long-term storage, indicating confidence among holders in Bitcoin’s potential value.
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To observe Bitcoin’s price Using the MVRV Extreme Deviation Pricing Bands, Martinez called a retracement above the +0.5σ price band at $64,600. Such an upswing has historically led BTC to test the 1.0σ price range, which is supported by increasing demand. Meanwhile, this price range is currently stuck roughly at $77,000.
Currently, Bitcoin’s price is trading at $66,275, indicating an increase of more than 5% in the past week. Although prices have risen, trading volume has fallen by 24%, while the market capitalization has increased by 0.23%.
Featured image from iStock, chart from Tradingview.com