Investors Regained Confidence in Bitcoin Amid Price Recovery, Data Suggests

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• A sudden bitcoin price crash similar to the one seen a few weeks ago now looks unlikely, with exchange deposits having dropped by over 30 percent in the last 12 days.
• The decline in the exchange deposits suggests investors have regained confidence in the long-term viability of bitcoin, according to analysis.
• A range breakdown on the four-hour chart would expose support at $6,000.
• A move above $7,000 is needed to revive the recent recovery rally.

Bitcoin BTC$87,194.11 may not be out of the woods yet, but prospects of another sudden price crash now look to have diminished.

The top cryptocurrency by market value is currently trading near $6,700, representing a gain of over 70 percent from the low of $3,867 seen March 13, according to CoinDesk’s Bitcoin Price Index.

While the price recovery looks impressive, there are concerns the cryptocurrency remains vulnerable to another liquidity crisis in the global markets, as discussed Wednesday. Technical charts are also flashing signs of bull fatigue.

However, any decline is likely to be more measured than the violent price drop of nearly 40 percent seen on March 13, as the number of on-chain deposits to exchanges has declined significantly over the past 12 days.

Exchange deposits slide

The seven-day average of the number of transfers to exchange addresses has fallen by 35 percent from 33,303 to 21,048 over the last 12 days. Tuesday’s figure of 21,048 was the lowest level since Aug. 26, according to blockchain intelligence firm Glassnode.

The transfer data is sourced from 12 major exchanges: Binance, Bitcoin.de, Bitfinex, Bitstamp, Bittrex, Coinbase, Gemini, Hitbtc, Huobi, Kraken, Okex and Poloniex.

"It comes as no surprise that deposits on digital asset exchanges have dropped by more than 30 percent, as investor confidence took a hit after the sudden price crash seen on March 13 and many short-term traders and investors sold off their holdings to cut off what they saw as potential for further losses," Matthew Dibb, co-founder and COO of Stack, told CoinDesk.

Essentially, selling pressure has weakened significantly with the crowding out of weak hands (investors) and speculators.

Investors usually move coins to exchanges during bear markets and withdraw funds from exchanges during upswings. Large increases in exchange inflows are usually seen ahead of big price drops. For example, coins began flowing into exchanges at a faster rate starting from March 8 – four days ahead of the 40 percent crash observed March 12.

Non-custodial exchange CoinSwitch's CEO Ashish Singhal said the latest decline in exchange deposits is a sign investors currently are reluctant to trade or sell bitcoin at the current price and have a belief in the long-term viability of the cryptocurrency.

That could be the case. While the cryptocurrency has repeatedly failed to move past $7,000 this week, exchange deposits have continued to drop. Investors would likely have moved their coins to exchanges had they lacked confidence in the price rise.

All in all, the probability of bitcoin suffering a crash due to bulk liquidations appears quite low.

From a technical standpoint, buyers need to defend support near $6,450 that, if breached, could invite chart-driven selling.

4-hour chart

Bitcoin is teasing a rising channel breakdown at press time.

A stronger signal bearish signal would be a violation of the support at $6,458. That level marks the lower end of a sideways channel marking a four-day price consolidation.

If confirmed, a range breakdown could prompt a pullback to psychological support at $6,000.

On the higher side, $7,000 is the level to beat for the bulls. A move higher would reinvigorate the bullish trend and allow a rise to resistance range of $7,700-$7,800. Taking the drop in the exchange deposits into account, the bullish scenario looks likely.

Disclosure: The author holds no cryptocurrency at the time of writing.