On August 5, 2024, the Bitcoin market once again experienced a significant price fluctuation. Within a day, the price of Bitcoin plummeted, triggering widespread market attention and discussion. This plunge not only caught investors off guard, but also caused market analysts to begin to delve into the reasons and possible future development trends. In this article, we will interpret the three major bearish warning signals behind the Bitcoin plunge, and also discuss the three major bullish signals, in order to provide investors with a more comprehensive perspective.

Three bearish warning signs

Shift in market sentiment

Market sentiment plays a vital role in cryptocurrency investment. Before the Bitcoin crash, there was an overly optimistic mood in the market. Many investors and analysts were expecting Bitcoin to continue to break through all-time highs. However, rapid shifts in market sentiment often trigger large price fluctuations. Negative news on social media, pessimistic reports in mainstream media, and warnings from some well-known investors can quickly change market sentiment and lead to panic selling.

In early August, some influential cryptocurrency commentators on the social media platform Twitter (now X), such as @CryptoWhale and @TheMoon, published several analytical articles on the possible bubble in the Bitcoin market, which attracted a lot of reposts and discussions. At the same time, the Wall Street Journal and the Financial Times also published several articles questioning the high valuation of Bitcoin. These remarks and reports spread quickly, triggering panic among investors and leading to a large-scale sell-off in the market.

Technical indicators give warnings

Technical analysis is a common method used in the cryptocurrency market to predict market trends by analyzing price charts and various technical indicators. Before the Bitcoin crash, some key technical indicators had already sent warning signals. For example, the relative strength index (RSI) showed that Bitcoin had entered the overbought area, indicating that the market may be due for a correction. In addition, the crossover of the moving averages also indicated that the price may go lower.

In early August, a "death cross" formed on Bitcoin's daily chart - the 50-day moving average crossed below the 200-day moving average, a classic bearish signal. In addition, the relative strength index (RSI) had exceeded 70 a week before the crash, entering the overbought zone. These technical indicators showed that the market was overheated and prices might be due for a correction. On August 5, these technical signals were validated by the market, and Bitcoin prices fell rapidly.

Changes in the macroeconomic environment

Changes in the macroeconomic environment have also had a significant impact on the Bitcoin market. Recently, the uncertainty of the global economic situation has increased, and the Federal Reserve's monetary policy has become more stringent. These factors have put pressure on high-risk assets such as Bitcoin. In particular, the Fed's interest rate hike policy has caused funds to flow from high-risk assets to safer investment targets, which in turn triggered a wave of Bitcoin selling.

At the end of July, the Federal Reserve announced another 25 basis point rate hike and said that it may continue to raise interest rates in the future. This news triggered market concerns about high-risk assets, leading to a sell-off in the cryptocurrency market, including Bitcoin. At the same time, the European Central Bank also stated that it would maintain a tight monetary policy to cope with inflationary pressures. These changes in the macroeconomic environment have further exacerbated market uncertainty, causing investors to withdraw from high-risk assets and turn to safer safe-haven assets such as gold and US Treasury bonds.

Six bullish signals

Long-term demand growth

Although Bitcoin has experienced sharp fluctuations in the short term, the market demand for Bitcoin remains strong in the long run. In particular, in some economically unstable regions, the demand for Bitcoin as a means of storing value is increasing. In addition, more and more institutional investors are beginning to include Bitcoin in their asset allocation, which also provides support for the long-term growth of Bitcoin.

In some countries in Latin America, such as Argentina and Venezuela, due to the extreme instability of their currencies and high inflation rates, residents' demand for Bitcoin has increased significantly. Data shows that Bitcoin trading volume in Argentina has increased by nearly 200% in the past year. In addition, world-renowned investment institutions, such as Fidelity Investments and BlackRock, have also begun to include Bitcoin in their asset portfolios, further promoting the market demand for Bitcoin.

Advancing technological development

The continued development of Bitcoin and its underlying blockchain technology is also an important bullish signal. Technological upgrades to the Bitcoin network, such as the popularity of the Lightning Network, have greatly improved the speed and efficiency of Bitcoin transactions. In addition, other innovations such as the development of decentralized finance (DeFi) and smart contracts have also brought new application scenarios and growth opportunities to Bitcoin and the entire cryptocurrency market.

Improvement of policy environment

The improvement of the policy environment is also an important signal for the future bullishness of Bitcoin. Although the regulatory attitudes of countries around the world towards cryptocurrencies vary, the overall trend is towards a clearer and more friendly direction. More and more countries are beginning to recognize the legal status of Bitcoin and introduce corresponding regulatory frameworks to promote its healthy development. In early 2024, the U.S. Securities and Exchange Commission (SEC) approved a Bitcoin ETF (Exchange Traded Fund), which is an important milestone in the development of the Bitcoin market. The launch of the Bitcoin ETF will provide more traditional investors with a way to enter the Bitcoin market and increase the liquidity and stability of the market.

In addition, Germany also recently passed a bill allowing institutional investors to hold up to 20% of cryptocurrency assets. Japan has further standardized the operations of cryptocurrency exchanges to ensure market transparency and security. Improvements in these policy environments will help enhance market confidence in Bitcoin and drive long-term price increases. Positive regulatory adoption of cryptocurrencies is growing. The key piece of evidence is the increasing likelihood of a pro-cryptocurrency U.S. regime. Several notable developments include: an increase in the amount of Bitcoin held by U.S. businesses, Democratic and Republican support for cryptocurrencies, and Bitcoin fair accounting rules set to take effect in 2025. While there may be some short-term hurdles, the overall trend remains positive and strong.

Gold market impact

Fluctuations in the gold market tend to have an important impact on the Bitcoin market. Gold, as a safe-haven asset, tends to outperform other risky assets in risk-off markets. Currently, macro uncertainty is high due to geopolitical conflicts, an uncertain US election, and the yen carry trade. While Bitcoin may follow gold, riskier altcoins may not. In 2019, when gold broke back above its highs, Bitcoin also hit highs. This pattern repeated itself in March 2024, showing the correlation between gold and Bitcoin. Although the market may cool in the short term, gold's upward trend supports Bitcoin in the long term.

Stablecoin Inflows

Despite the slump in cryptocurrency prices, stablecoin supply is approaching all-time highs (ATH). This year, stablecoin supply has grown by more than 25%. As capital continues to flow into the crypto market, the long-term bearish outlook is difficult to support. The increase in stablecoin supply indicates that more liquidity is flowing into the crypto market.

Stablecoins are capital that can be invested in crypto assets. Historically, rising supply has usually foreshadowed rising cryptocurrency prices. While rate cuts may have a negative impact on riskier assets in the short term, they are bullish for stablecoins in the long term. As yields on traditional assets decline, on-chain yields become more attractive. This could boost the expansion of stablecoins in the coming months.

Global debt hits record high

Global debt reached an all-time high of $315 trillion earlier this year. With elections in over 50 countries in 2024, governments may be inclined to cut taxes and cash stimulus. The “debt problem” is viewed in terms of a four-year liquidity cycle, which has been based on governments refinancing debt since 2008. We are currently in a “macro summer”, where earnings are expected to gradually rise. This phase usually leads to a “risk-on” macro fall.

in conclusion

Bitcoin's August 5 crash reflects the high volatility and complexity of the market. When interpreting this event, we should see both the bearish warning signals that led to the crash and the bullish signals that support Bitcoin's long-term development. The shift in market sentiment, warnings from technical indicators and changes in the macroeconomic environment are the main reasons for the crash, while the increase in long-term demand, the advancement of technological development and the improvement of the policy environment provide strong support for the future development of Bitcoin.

Investors need to remain calm and rational when facing the volatility of the Bitcoin market. Although the price fluctuations are drastic in the short term, Bitcoin still has huge potential and room for development in the long run. By deeply analyzing market dynamics and grasping bearish and bullish signals, investors can better formulate investment strategies and achieve steady appreciation of assets.

To sum up, the market prospects of Bitcoin are still full of variables, but as long as we can accurately identify and respond to various signals, we may be invincible in this market full of challenges and opportunities.

Follow us TrendX

TrendX is the world's leading artificial intelligence (AI) driven Web3 trend tracking and smart trading platform, aiming to become the preferred platform for the next 1 billion users to enter the Web3 field. By combining multi-dimensional trend tracking and smart trading, TrendX provides a full range of project discovery, trend analysis, primary investment and secondary trading experience.

Investment is risky. The project is for reference only. Please bear the risk yourself.