During an interview with Bloomberg, Grayscale CEO Michael Sonnenshein said that in addition to hedge funds, pension funds and endowments had also started investing in the Grayscale family of products. This suggests that a broad spectrum of institutions are accumulating Bitcoin (BTC).
As this trend gathers speed, investment banks have also decided that they do not want to be left behind. A recent filing from Morgan Stanley shows a purchase of a 10.9% stake in business intelligence firm MicroStrategy, a move that was likely made in order to gain exposure in Bitcoin. With 70,470 Bitcoin in their possession, MicroStrategy has become a proxy play on Bitcoin.
Several analysts suspect that the current demand could also be coming from investors who have been closing their gold positions and buying Bitcoin. On a query about the recent underperformance of gold, CNBC Mad Money show host Jim Cramer speculated that institutional money may be flowing into cryptocurrency.
While there have been positive reports about institutional purchases, traders should also keep track of the people who have been selling because at some point the rally will lose momentum and investors will look to book profits.
Analysts at Material Indicators suggest that mega whales may have booked profits on Jan. 7 when Bitcoin hit $40,000 and further selling from whales could also be the reason for the price drop seen today. However, aggressive buying at lower levels resulted in a strong rebound.
But that has not deterred the whales from selling. Bitcoin whales in South Korea have been dumping their positions over the past few days, as seen from the multiple $100 million deposits to exchanges. While the selling has not caused a massive rush to the exit, traders should be careful with their positions because even if a couple of large investors in the U.S. rush to the exit, it could result in a sharp fall.
If Bitcoin corrects sharply, most altcoins are also likely to follow suit, but if Bitcoin remains strong, these top-5 cryptocurrencies could outperform in the short term.
Let’s analyze their charts to spot the critical levels to watch.
Bitcoin has been in a strong uptrend for the past few weeks, but the rally has pushed the relative strength index (RSI) into overbought territory. While markets can remain overbought for a long time, with every rise, the risk of a sharp correction increases.
The first support on the downside is the intraday low made on Jan. 8 at $36,518.73. If the price rebounds off this level, it will suggest that traders are not booking profits in a hurry and are buying on minor dips.
If the bulls propel the price above $41,959.63, the uptrend could resume with the next target objective at $45,000 and then $50,000.
However, if the bears sink the price below $36,518.73, the BTC/USD pair could drop to the 38.2% Fibonacci retracement level of the most recent leg of the up-move at $32,816.03.
This is a crucial support to monitor because if it cracks, several traders may start to panic and dump their positions, which may result in a deeper correction to the 61.8% retracement level at $27,167.10.
The 4-hour chart shows that the price is currently stuck inside a $38,000 to $41,959.63 range. If the bulls can push the price above the range, the uptrend may resume.
On the other hand, if the bears sink the price below the support of the range, it will suggest profit-booking by traders.
The next support on the downside is the 50-simple moving average, which has not been breached decisively during previous corrections in this leg of the uptrend. Thus, if this support cracks, it will signal a possible trend change.