Bitcoin has undergone a big trend shift, and market sentiment has also shifted significantly in 2023. Since breaking out of consolidation, Bitcoin’s momentum has swung to the upside, indicating a possible transition from a bear market to the first phases of a new bull market.
Charles Edwards, a professional quant investor and the creator of the Hash Ribbon indicator, provides monthly industry updates, major trends, and technical and fundamental Bitcoin analysis in a newsletter.
According to Edwards, when prices increase in desirability, the market gets saturated with long-term investors who have no intention of selling until prices are much higher.
According to the expert, long-term holders appreciate the worth of the cryptocurrency and are “price insensitive”; when the market reaches this level, exchange/broker order books become less liquid due to fewer marginal sellers. As prices increase in desirability, the market gets saturated with long-term investors who have no intention of selling until prices rise dramatically.
Once a whiff of demand enters an illiquid order book, severely undervalued assets skyrocket for Edwards due to the short squeeze. Because there are so few active vendors on the market, there are no sellers for customers to purchase from. As the nearest available sellers make orders, this produces bullish momentum.
Charles Edwards’ Market Leverage Ratio, a Capriole Investment measure of aggregate leverage and positioning in the market, reveals a very comparable pattern that happened in January 2023 and mid-year 2021, when Bitcoin entered a period of price discovery. The researcher wrote:
“Midway through 2021, we saw the similar long liquidation, capitulation, and short squeeze structure as in January 2023.” Both were 9.5 weeks long. This is known as a “sell side liquidity crisis” in crypto.
