The price of Bitcoin (BTC) has been consolidating within a tight range for several months. If the top cryptocurrency successfully breaks out, Bitazu Capital founding partner Mohit Sorout says a record-high would be imminent.
Since July 2020, Bitcoin has been ranging between $10,200 and $11,800, a 15% range. It has seen subdued volatility for a prolonged period, except for some short instances of a volatility spike.
When Bitcoin stays stable for a long time in a tight price range, a major price movement typically occurs.
Whether a breakout would occur in the near term or not remains an uncertainty. But if it happens, Sorout says it would take three months for BTC to hit $20,000.
Why three months for a Bitcoin all-time high following a breakout?
Based on previous price cycles, Bitcoin tends to move fast after existing a long-range. The pattern historically applied both breakouts and breakdowns.
From May 1 to July 20, Bitcoin ranged between $8,800 to $9,800, stabilizing at around $9,100. After two months of consolidation, it took BTC 12 days to record a 32% rally to $12,123 on Binance.
Considering the tendency of Bitcoin to see large volatility spikes after prolonged consolidation periods, Sorout said:
“Calm before the storm. If $BTC was to break out today, it would most probably reach its previous ATH of $20k within 3 months.”
When asked about the reasoning behind the three-month span, Sorout said it is based on an observation of volatility.
According to Sorout, a price increase towards $20,000 could happen even earlier than three months. He noted:
“An observation based on how violent the rallies are after subdued periods of volatility. Could even be earlier.”
One important variable to pinpoint is the decline in futures open interest compared to previous bull markets.
Particularly after the U.S. Commodities and Futures Trading Commission or CFTC’s charges against BitMEX, overall futures open interest has dropped. This could lead to a more stable and gradual uptrend for Bitcoin, unlike past bull cycles.
Year-to-date open interest of BitMEX. Source: btctools.io
Factors that could strengthen BTC’s momentum in Q4 and throughout 2021
A strong narrative around a Bitcoin bull cycle heading into 2021 remains the recent upsurge of institutional demand.
On Oct. 17, Grayscale CEO Barry Silbert said the firm hit record-high assets under management at $6.4 billion. Silbert emphasized that the firm saw “BIG inflows this week.”
Institutions that have been acquiring Bitcoin, like Square and MicroStrategy, said they perceive Bitcoin as a potential treasury asset. If so, that could mean that many institutional investors are accumulating BTC without the intent to sell in the near future.
The S2F model with its latest update. Source: PlanB
The price of Bitcoin has been relatively stagnant throughout October despite the positive news around institutional inflows. But stock-to-flow (S2F) creator PlanB said asymmetrical returns are likely to occur over time. He stated:
“Why does #bitcoin price not go up with all this institutional buying? Who is selling? BTC price is exactly where it should be, holding firm above $10K, waiting for that one moment .. asymmetrical returns .. patience!”