Despite recent volatility and a decline to five-month lows, Bitcoin (BTC) shows signs that bullish momentum could prevail, suggesting a potential resurgence in its price trajectory.
Bitcoin encountered a rocky start this month, dropping over 10.50% to settle around $57,000 as of July 7. At its lowest point, BTC touched $53,550, largely driven by concerns over market dynamics such as Mt. Gox’s ongoing reimbursement of over 140,000 BTC to clients and BTC liquidations by the German government.
The recent decline in Bitcoin’s price coincided with a notable bullish divergence where the relative strength index (RSI) showed increasing strength despite falling prices. This divergence typically signifies weakening selling pressure amidst declining prices.
In technical analysis, such scenarios often hint at potential reversals or a slowdown in the current downtrend, suggesting Bitcoin could soon rebound as market sentiment leans back towards bullishness.
Two other key technical indicators support the possibility of a bullish reversal. Firstly, Bitcoin formed a bullish hammer candlestick pattern on July 5, characterized by a small body at the top of the daily candle, a long lower shadow, and minimal upper shadow. This pattern mirrors a similar occurrence in May. Secondly, Bitcoin’s daily RSI hovers near the oversold threshold of 30, historically preceding periods of consolidation or recovery. Analyst Jacob Canfield anticipates this indicator signaling a rebound, potentially pushing BTC back towards its previous high above $70,000.
Moreover, Bitcoin’s potential to resume its upward trajectory in the coming weeks is bolstered by increasing expectations of a September interest rate cut by the Federal Reserve, as observed by Wall Street traders. As of July 7, there is a 72% probability of a 25 basis points rate cut, up from 46.60% a month earlier. This shift is partly attributed to a slowdown in US hiring, a factor that typically prompts the Fed to consider rate cuts to stimulate economic activity. Lower interest rates generally favor riskier assets like Bitcoin over traditional safe-haven investments.
Further optimism for Bitcoin stems from renewed inflows into US-based Spot Bitcoin exchange-traded funds (ETFs) following two consecutive days of outflows. On July 5, these funds collectively attracted $143.10 million worth of BTC, signaling growing risk appetite among Wall Street investors. Leading this resurgence were funds like the Fidelity Wise Origin Bitcoin Fund (FBTC), which saw inflows of $117 million, alongside others such as the Bitwise Bitcoin ETF (BITB), ARK 21Shares Bitcoin ETF (ARKB), and VanEck Bitcoin Trust (HODL).
Additionally, a recent uptick in the US M2 money supply, which includes cash, checking deposits, and other liquid assets, further supports Bitcoin’s bullish case. The M2 supply grew by approximately 0.82% year-over-year as of May 2024, reducing its decline from the peak drop in October 2023. This liquidity injection tends to drive investments towards riskier assets like Bitcoin, as traditional investments offer lower returns.
Bitcoin miner metrics are also hinting at a potential price bottom, reminiscent of levels seen following the FTX crash in late 2022. Miner capitulation indicators, such as declines in Bitcoin’s hashrate, suggest some miners are scaling back operations due to financial pressures. This trend historically precedes market recoveries as stronger miners gain profitability and stabilize operations.
In summary, while Bitcoin’s recent price actions have been turbulent, various indicators suggest potential for a bullish turnaround. However, it’s crucial for investors to conduct thorough research and consider the risks involved before making any investment decisions.