A Positive Indicator for BTC Price: Is Negative Bitcoin Absorption Rate Bullish?
Both the monthly and yearly Bitcoin absorption rates are currently negative. Analysts are interpreting this as a positive sign for the price of BTC.
Despite Bitcoin struggling to surpass $32,000 this year and staying below $30,000 for much of the past week, the negative absorption rate could be encouraging news for investors anticipating a price surge.
What is the Bitcoin Absorption Rate?
The Bitcoin absorption rate is a metric that compares mining rates with changes in the balance of BTC on exchanges.
Bitcoin analysts examine the absorption rate over different time periods to gauge the demand for Bitcoin.
If the majority of people are selling their BTC, then exchanges will absorb more than what miners are creating. On the other hand, if the inflows to exchanges are less than the volume of Bitcoin mined over a given period, it suggests that wallets are accumulating the new supply.
In addition to time periods, another variable used to calculate absorption rates is the size of wallets that are accumulating BTC. For example, data can reveal whether large investors, also known as whales, are stockpiling cryptocurrency at a faster rate than miners can create it. The same analysis applies to other investor cohorts.
BTC Accumulation Indicates Higher Prices on the Horizon
When it comes to predicting the future price of Bitcoin, analysts closely monitor absorption rates for clues about wallet accumulation.
The monthly rate of Bitcoin absorption has remained negative since May. Furthermore, the yearly absorption rate currently stands at around -100%. This means that over the past year, investors have accumulated twice as much BTC as miners have created.
When wallets accumulate more coins than miners create, it creates a scenario where demand outweighs supply. For this reason, many analysts view negative absorption rates as a bullish indicator for future prices.
A case in point is YouTuber James Mullarney, who discussed bitcoin absorption in a recent video. With 446,000 subscribers on YouTube, Mullarney’s assessment was optimistic. He interpreted the current absorption pattern as an indication of “much higher prices in the future.” He also noted that the 2020-2021 bull run coincided with, and surpassed, a similar period of sustained negative absorption rates.
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