- Tighter liquidity and concerns about FTX’s liquidation made Bitcoin enthusiasts cautious.
- A widespread sell-off could lead to a price increase over time, as shown by historical data.
For the first time in almost three months Bitcoin [BTC] fell below $25,000 as panic and uncertainty spread across the market.
How much are 1,10,100 BTCs worth today?
The coin, which initially proved to be one of the best performing assets of the year, is now struggling to catch up to the momentum of other digital currencies outside the crypto market.
To be fair, the reasons aren’t far-fetched, and Deutsche Digital Assets’ research department has done a good job of it explain the grounds. At the top of the list was the expected liquidation of FTX’s remaining assets.
Bitcoin is moving into bearish territory
According to Deutsche, there is a bearish sentiment about Bitcoin and the crypto market. The company also noted in its report that press sentiment was much lower than the market’s optimism during the positive development of ETF applications.
In its September 11 insight, Deutsche stated:
“Last week, crypto assets posted another weak performance amid the expected liquidation of FTX’s crypto asset holdings.”
Recall that BlackRock’s advances on the Bitcoin ETF pushed the coin above $30,000. Although the BTC price dropped significantly a few weeks later, the price fell Grayscale The partial win over the US SEC also pushed BTC above $28,000.
To defend its view of bearish dominance, the crypto asset exposure provider leveraged the crypto sentiment index. Like Bitcoin’s fear and greed index, the metric identifies the perception in the market by taking into account asset flows, volatility and actions taken by participants.
At the time of writing, the index was in the fear region. This means that much of the market is pessimistic about BTC’s short-term performance. Therefore, there is widespread reluctance to buy BTC at the press time price.
Source: Deutsche Digital Assets
Furthermore, Deutsche explained that the decline in global Exchange Traded Products (ETPs) flows is taking place. In another sign of a move into bearish territory, the report noted that:
“Most of the net outflows occurred within Bitcoin and Ethereum funds (USD -72.5 million and USD -12.8 million respectively).”
Not every increase deserves applause
On the plus side, Deutsche noted that the increase in the number of active Bitcoin addresses was a welcome development. It also highlighted that many hedge funds had increased their exposure to Bitcoin and other crypto assets.
However, on-chain BTC transfers were at a very low point, meaning macro liquidity was tightening. Therefore, it is possible that Bitcoin’s market capitalization will decline in the future next days. On the derivatives side, open interest appears to be picking up again.
Open interest is the total number of open futures contracts at the end of a trading day. When Open Interest increases, it means that liquidity in the derivatives market also increases. Conversely, a decrease in the measure indicates an increase in the number of contract closures.
However, trader Daan Crypto said that the open interest after a squeeze may not be a good sign for Bitcoin. While referring to previous similar scenarios, Daan noted that BTC could be in full decline.
#Bitcoin The open interest rate is rising again quickly after the tightness.
This also happened during all previous moves up, where many positions entered later, the price refused to move, started turning and we went for a full retrace.
Not again, gentlemen. pic.twitter.com/PhI9ZapnrO
— Daan Crypto Trades (@DaanCrypto) September 12, 2023
Ultimately hoping for BTC
But he also believed that the retracement could be avoided. Daan posted on X (formerly Twitter) that BTC’s ability to rise above $26,100 could be the catalyst the coin needs to escape the retracement. His message read:
“My hope is that the fact that the move started during the Asia session will make for a rare full trending day. Above 26.1, I think we’re safe from a full reversal for now. Bulls needed to keep the momentum going while gaining it in the lower time frames.”
In the meantime, CryptoQuant author BaroVirtual wrote clarified that Bitcoin could soon return to its bull phase. According to him, BTC was in a serious crisis accumulation phase, as indicated by the short-term SOPR (Spend Output Profit Ratio).
The SOPR indicator provides insight into macro market sentiment, profitability, and losses incurred over a specific time frame. It also reflects the degree of profit or loss realized for all coins moved in the chain.
Normally, values of the SOPR greater than 1 imply that holders sell with profit. But if the measure is negative, it is a sign of accumulated losses by short-term holders.
Source: CryptoQuant
Realistic or not, here is the market cap of BTC in ETH terms
While the statistic hovered around the negative zone, BaroVirtual explained that it was similar to the situation around May to September 2021, March 2020 and October to December 2019.
He concluded that,
“The indicated periods of the 155-day RoC negative histogram coincide with bursts of short liquidations (USD) from some strength, indicating a sell-off at or near the bottom. After that, Bitcoin tends to increase in price over time.”