Bitcoin may witness a short-term bounce that has everything to do with reserves

Bitcoin [BTC] has attempted a mid-week bounce in recent weeks to break free from the ongoing bearish grip. The latest observations in the market suggest that a similar outcome could happen this week, and here’s why.

According to a Cryptoquant analysis conducted by MAC_D, Bitcoin reserves in the spot market fell in the last two days. In contrast, Bitcoin reserves in derivatives exchanges increased in the same period.

Source: CryptoQuant

A decline in BTC exchange reserves was a good sign that people were buying the dip. Such was the case when BTC fell below $19,000. The rise in BTC currency reserves in the derivatives market may indicate an increase in demand for derivatives trading. It may not directly indicate that there was incoming selling pressure, but it could be a sign of more volatility ahead.

One of the reasons for this expectation was that many derivatives traders practice leveraged trading. As a consequence, the price was sensitive when there was a high number of leveraged positions. Both the open interest rate and the estimated loan-to-value ratio increased, which confirms significant activity in the derivatives market.

Are whales sitting on the sidelines?

Whales have trimmed the balance for most of September. This was evident by the drop in the number of BTC addresses holding more than 1 BTC over the past four weeks.

Source: Glassnode

Addresses with more than 1 BTC at press time were at their lowest level in the past four weeks. Investors should keep an eye on this metric because a shift will confirm strong accumulation.

Bitcoin’s R-HODL ratio improved over the past 24 hours despite a lack of demand from whales. This reflected the increased activity in the derivatives market and can be considered another indicator of incoming short-term bullishness.

Although these indicators point to a potential bullish relief, there was still a possibility of more downside. BTC still had some room to push down before brushing off its short-term support. At press time, BTC was nowhere near the oversold zone.

Source: TradingView

Another bearish move is likely to result in a support retest near or below the $18,000 price level. On the other hand, there was still some Bitcoin price RSI divergence that may have acted in favor of the bulls. Price will soon give way to the bulls as relative strength increases.

What to expect

Another short-lived rally is the most likely outcome, especially if the whales remain on the sidelines. Investors should therefore keep an eye on whale activity because it will determine the strength of the resulting upside.