Both monthly and annual Bitcoin absorption rates are currently negative. Analysts are reading this as a bullish sign for the price of BTC.
With Bitcoin yet to break above $32,000 this year and below $30,000 for most of last week, the negative absorption rate could be good news for investors hoping it will move higher.
What is the absorption rate of Bitcoin?
Bitcoin absorption rate is a metric that compares mining rates to changes in BTC balance on exchanges.
Bitcoin analysts look at the rate of absorption over different periods to estimate demand for Bitcoin.
If most people are selling their BTC, then the exchanges will absorb more than the miners create. On the other hand, if the exchange inflows are less than the volume of Bitcoin mined during a given period, then this indicates that the wallets are absorbing the fresh supply.
In addition to time periods, another variable used to calculate absorption rates is the size of wallets that accumulate BTC. For example, the data could show whether whales are hoarding crypto faster than miners can create it. The same applies to other groups.
Accumulation of BTC indicates higher prices on the horizon
When it comes to predicting what will happen to Bitcoin’s price, analysts watch absorption rates for clues as to whether wallets are accumulating assets.
Bitcoin’s monthly absorption rate has remained negative since May. Furthermore, the annual absorption rate currently stands at around -100%. This means that investors have accumulated twice as much BTC over the past year than miners have created.
If wallets accumulate more coins than miners create, demand will be greater than supply. For this reason, many analysts read negative absorption rates as a bullish indicator for future prices.
For example, YouTuber James Mullarney discussed the absorption of bitcoin in a video published this week. His assessment was optimistic.
The crypto influencer with 446,000 YouTube subscribers told viewers that the current absorption pattern indicates “much higher prices in the future.” Furthermore, he noted that the 2020-2021 growth run coincided with and then extended a similar period of sustained negative absorption rates.
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