Cathie Wood and her team at Ark Investment Management are huge fans of innovation, so naturally, they love Bitcoin (BTC 4.04%). Every month Ark's analysts take a deep dive into some key metrics on the Bitcoin network, which provide a glimpse of levels of activity and patterns that might affect prices.
The reports are retrospective and analyze the prior month, so the most recent report looked back at December. Bitcoin's price didn't do much of anything in December. Despite its lackluster performance during the month and a lack of notable statistics (neither positive or negative), Ark's analysts surmised that Bitcoin might be preparing for a significant move.
Ark found that Bitcoin's volatility in December hit its lowest level since late 2020. Before that it hadn't been this low since late 2018. Typically when volatility gets this low and for this long, some sort of price movement awaits. Ark analysts didn't specify whether it would be for the better or worse, but it looks as though it swung in favor of investors as Bitcoin has been on a tear, posting a gain of more than 25% since the new year.
The reason for this recent swing in prices might be due to another statistic presented in the report. Ark found that the $16,000 to $17,500 levels are where Bitcoin has some of its strongest support, a concept that technical analysts use to suggest prices aren't likely to fall further. Some analysts believe support is so strong here because the number of transactions that have occurred in this range are some of the highest in Bitcoin's history.
A possible end to the bear market?
While it's easy to love a little speculation, there is one trend that proves Bitcoin investors are committed to making it through this bear market. Ark found that the number of Bitcoin holders with coins that haven't moved in more than two years is near an all-time high. An astounding 47% of all Bitcoins have been stagnant since January 2021, a level not seen since late 2020 and late 2017. In the past two incidents, this low level of activity foreshadowed a jump in prices that eventually resulted in all-time highs just months after.
Now, Ark doesn't foresee any Bitcoin reaching an all-time high anytime soon. To do so, it would have to rise to about $69,000, far beyond its price of about $21,000 now. A series of factors such as low volume, little increase in new addresses, and even continued controversy in the crypto industry are viewed as limiting factors to Bitcoin's growth in the short term.
Yet Ark believes the first quarter of 2023 could be crucial for Bitcoin's direction during this year. Without explicitly saying it, Ark's analysts implied that if Bitcoin can generate some momentum early on, it could lead to some sustained price gains for the rest of the year.
Based on how Bitcoin has behaved during the past week, this might be playing out right in front of investors. Although the recent surge in prices seems to have revived interest in the cryptocurrency, the big picture here is that Bitcoin still hasn't done much. In the long run, the difference between purchases made at $17,000 or $21,000 will be infinitesimal as Bitcoin climbs in value. There shouldn't be any rush to go all in nor should there be much panic that Bitcoin could plummet further thanks to the support level that Ark suggested. As Bitcoin continues to trade in a limited price range, it could be a great time to add to positions. Consider me a buyer today even with the recent price swing.
