Bitcoin (BTC) experienced a significant drop of 5.42% in the last 24 hours, reaching a new low at $57,151 on May 1. On-chain data suggests that the decline in Bitcoin demand growth and the increase in open short positions may be the cause of this drawdown, indicating that BTC may reach even lower levels.
According to CryptoQuant, the decrease in demand for Bitcoin can be seen in the reduced growth of Bitcoin balances among long-term holders, a slowdown in spot Bitcoin ETF demand, and an increase in short positions in the futures market. Data from CryptoQuant shows that demand from long-term holders, who only buy Bitcoin and never sell, dropped by 50% in April, from over 200,000 BTC in late March to about 90,000 BTC.
The chart provided by CryptoQuant demonstrates that this metric has reached levels similar to early March when Bitcoin also experienced a significant correction, dropping 7% immediately after reaching its all-time high. Demand from large investors has been declining since late March, and CryptoQuant analysts believe that slower growth in demand from these investors usually drives BTC price corrections.
Furthermore, the analysts noted a decline in Bitcoin demand through a decrease in purchases from spot ETFs in the U.S., which adds to the selling pressure. The report mentions that the daily purchase of Bitcoin from ETFs has dropped to almost zero, after peaking at over $1 billion in mid-March. The report suggests that a new wave of Bitcoin purchases from ETFs is needed to revive demand growth.
Another metric used by CryptoQuant to explain the decrease in Bitcoin demand is the unwillingness of traders to pay higher prices to open long positions, as sell orders outpace buy orders. The funding rate for Bitcoin has reached a year-to-date low, indicating that traders are reluctant to pay as much as before to open long positions. Instead, the recent price decline has been driven by traders opening short positions in anticipation of further price declines.
Analysts agree that the direction for Bitcoin price is likely to be downwards. CryptoQuant analysts have set a lower target within the $55,000 to $57,000 demand zone, which is 10% below the current cost basis of traders at $63,000. This cost basis has historically provided support for prices during bull markets. Popular analyst Scott Melker believes that $52,000 is the lowest Bitcoin price can go in the short term, considering that the correction is still mild for a bull market.
Tuur Demeester, another Bitcoin analyst, observed Bitcoin trading at $60,409 and suggested that $50,000 could be the next support level for Bitcoin after losing the $60,000 support. Trader and analyst Mags stated that if Bitcoin closes below $60,000 on the weekly timeframe, a deeper retracement can be expected, potentially down to $40,000 or even lower.
It’s important to note that this article does not provide investment advice or recommendations. Readers should conduct their own research before making any investment or trading decisions.