Bitcoin Eyes $56,000 As ETF Outflows Continue
Bitcoin shows signs of continued downward pressure after falling below $56,000 on 4 September. Nevertheless, it rebounded above the same level during the same day. On the daily chart the asset has been moving sideways between $56,200 and $56,874. However, it has lost value by 3.5% within the last 24 hours. From the time the price was rejected from the $64,000 level it has been gradually losing value. Especially, after breaking below the $60,000 the downward momentum has increased.
Now, there is fear that if it breaks below $56,000 it may head towards $52,000. At the time of writing bitcoin’s relative strength index (RSI) reading is 48.27 which is within the neutral zone with bearish bias. The following bitcoin’s daily price chart shows its present price performance.
Bitcoin Daily Price Chart - CoinGecko
Bitcoin, which is currently trading at $56,332 BTC/USDT at Gate.io, is within a visible downtrend. However, on the 4 hour price chart it has formed a descending channel. If it has a breakdown its price may head towards $52,000. However, if it has a breakout it may rise towards $58,000.
Whereas technical analysis may help us to anticipate an asset’s future price, at times it may mislead. As such other metrics can help to supply additional information. In this case, the Bitcoin Short-Term Holder (SOPR) can assist us to understand its current state. For context, the Bitcoin Short-Term Holder SOPR is a metric that shows the ratio of profit/loss which is realized by short-term investors. If the reading is above 1 it shows that the asset is within a profit zone. If the ratio is below 1 it indicates a loss zone. The next graph shows the Bitcoin Short-Term Holder SOPR position.
Bitcoin Short-Term Holder SOPR - Cryptopotato
As the graph indicates, the 30-day exponential moving average of Bitcoin Short-Term Holder SOPR metric has been below 1 for several weeks. This shows that most of the short-term investors have been in the loss zone for such a period. If this situation continues supply will overwhelm demand which can result in lower prices in coming days or weeks.
Also, according to CryptoQuant the investors who acquired bitcoin in the last six months are either hodling or selling it at a loss. It stated, “Currently, we can observe a small peak in UTXOs under six months, which resembles a similar structure seen in 2019 (red circle). These are new investors who entered the market, likely around March of this year when Bitcoin’s price was at its peak.”
It added: “The declining proportion of these UTXOs suggests that these investors have either exited the market, likely due to losses amid Bitcoin’s stagnant movement, or have continued to hold and transitioned into the six-month-and-above group.”
Based on the current situation CryptoQuant has advised investors to be cautious. It added, “Bitcoin’s price has been stuck in a large range for more than six months, with no clear trigger for a breakout. While I have no doubt about the long-term upward trend, in the short term, I believe it’s wise to temper expectations and closely monitor the market.”
The current stagnation in the bitcoin market means that there is very little funds inflow from new investors. Since there is not much injection into the market it is unlikely that its price may rise by a good margin in the near future. CryptoQuant said that there was a similar structure in 2019. With that situation it took around 490 days for bitcoin to reach a new all-time high.
Possible Reasons for Bitcoin’s Continued Drawdown
Several factors may be contributing to bitcoin’s current downtrend. For example, in recent weeks the bitcoin price movement might have been tied to the fluctuations of the US dollar value. Also note that the recent speculations about a possible Federal Reserve interest rates cut influenced the change in the value of the dollar.
The persistent outflows from the spot bitcoin ETFs might also be contributing to its bearish momentum. For example, between 27 and 30 August the crypto ETFs recorded much outflow. Farside data shows that the sector had net outflows of $480 million. The outflows wiped out the gains of the previous two days when there was an inflow of $455 million. On 3 September there were net outflows of $287.8 million. During that period, Grayscale's Bitcoin ETF alone had net outflows of $2.2 million within five days. These outflows have created a negative market sentiment which is affecting the price of bitcoin.
The other factor that is contributing to bitcoin bearish outlook is a fall in profitability of the mining sector. Profit in the industry has declined so much thereby negatively affecting the mining operations. Since the past two months firms in the mining sector hold bitcoin worth around $1.8 million.That has also created a negative market sentiment. The recent fall in the bitcoin mining hash rate has raised fear of a possible miner capitulation. Of course a strong catalyst can trigger the bitcoin price to rise again in a meaningful way.