Crypto Market Stuck In 5 Months As ‘Structurally Ordered Downtrend’ Comes, Bitcoin’s Strength Will Decline
Bitcoin (BTC) rallied to $65,000 over the weekend (August 24 to August 25), extending its three-week recovery from the August 5 crash to $49,500.
As prices move back into the comfort zones of many investors, traders may be wondering whether to expect a similar range trade, consolidation, or expansion to new highs.
Let's look at a few Bitcoin price data points to see if it's time for BTC to break out of its current range.
The DXY is falling to a year-to-date low
The interaction between the US Dollar Index (DXY) and BTC is a recurring indicator that traders look to when predicting where the price of Bitcoin may be headed. For many, the logic is that a weak DXY often coincides with a rally in the price of BTC and vice versa. Last week, the DXY fell below 101 year-to-date and Bitcoin price broke above $53,000 as shown in the chart below.
DXY vs BTC 3 day chart. Source: TradingView
Real Vision Chief Crypto Analyst Jamie Coutts recently highlighted the volatility of DXY to BTC price action;
Unless something fundamentally changes, we are entering what @RaoulGMI calls the banana zone, or what I describe as the Bitcoin batshit period.
Related: 2024 Bitcoin Exchanges See Third Largest Net Daily Inflow
Powell finally says what crypto pundits have been waiting for.
In the year On August 23, US Federal Reserve Chairman Jerome Powell finally said it was time to cut interest rates, although he declined to specify the rate cut. Many crypto traders have based their high investment research on the belief that the Fed's rate cut will eventually return to its previous quantitative easing policy and that this expansion of the money supply will play a role in Bitcoin's price recovery.
Analysts at CryptoQuant noted that shortly after Powell's statement, Bitcoin prices surged more than 6% and that “2-year bond yields fell to their lowest level since March 2023.”
Bitcoin price reaction August 23 Fed Jackson Hole statements. Source: CryptoQuant
Market participants on Wall Street have high hopes for stocks after the Fed confirmed that interest rate cuts are on the way.
Stocks will begin gains not seen in 30 years after the Fed cuts rates, said Wells Fargo, $WFC, chief strategist.
— unusual_whales (@unusual_whales) August 27, 2024
When equilibrium is restored, demand for Bitcoin is shut down.
Bitcoin's average return to $65,000 is confirmed by data from Glassnode, which suggests that BTC is back in the “equilibrium” zone. According to Glassnode, the measurement of MVRV distortion bands shows;
“[…] Investor profitability has basically leveled off and the euphoria and excitement after the ETF launch has completely cooled down.
MVRV distortion bands. Source: Glassnode
Bitcoin's percentage of global profit metrics has also “returned to its long-term average,” indicating a state of equilibrium in the BTC markets.
Despite Bitcoin's rise to $65,000, investors' interest in BTC has been muted, data shows. Take note of CryptoQuant
“Bitcoin demand growth remains at a low level and has turned negative in the past few weeks.”
The analysts noted that demand for Bitcoin has “declined sharply” since April when BTC traded above $70,000.
“Demand has reduced to a negative 36K growth from a 30-day high of 496K Bitcoin in January 2021. As demand has waned, the price has fallen from ~$70K to a low of $49K.
The demand for Bitcoin. Source: CryptoQuant
Analysts at Glassnode noted a decrease in Bitcoin liquidity relative to the activity seen during BTC's all-time high in March. Referring to the correlation between Bitcoin price and net liquidity volatility, the analysts conclude that traders' appetite for risk and leverage is currently closed.
Bitcoin's Perpetual Liquidity/Return Volatility Ratio. Source: Glassnode
This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.
