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The Divergence Between Spot and ESR Supports Bitcoin's Recovery
Despite the -6 percent correction within last seven days, the leading cryptocurrency bitcoin has still strengthened by 32 % year-to-date (YTD). In my opinion, bitcoin has a significant chance to reach its fair price of $42K this year. One essential on-chain indicator supporting bitcoin's further price increase is the exchange stablecoins ratio (ESR) (yellow) which used to correlate with bitcoin's spot price in 2022. Throughout 2022, the ESR formed a convergence (pink, left) with the spot price, as they declined vis-à-vis. The falling ESR in 2022 mirrored the escalating selling pressure. Now the ESR has surpassed the technical inflection point (purple) and starts to diverge (pink, right) away from the spot price. After the previous distribution cycle (grey), bitcoin moves towards a new pre-halving accumulation cycle (turquoise), heading towards the 2024 halving event. These factors together propel bitcoin towards a new paradigm. Additionally, exchange bitcoin reserves (red) have been in a secular downtrend for years, dropping significantly during the FTX crisis of November 2022. Unlike the ESR, reserves don't act as a leading indicator to the spot price. Instead, the reserves mirror a long-term horizon trend of entities holding their assets off-exchange, which is a healthy development.