After facing a massive sell-off in June, Bitcoin might have potentially reached a local bottom, according to a new report by analysts from the Bitfinex exchange.
Bitcoin’s (BTC) price plummeted below the 120-day range on July 3, dropping to as low as $53,219 amid the increasing fear, uncertainty and doubt related to the start of Mt. Gox’s creditor repayments and other issues.
Bitfinex analysts suggested on July 8 that Bitcoin might have reached a local bottom based on market data over the weekend, even though Mt. Gox is yet to distribute 94,457 BTC — or about 67% of total BTC in repayments collected for creditors.
Bitfinex also mentioned that the fall in BTC was partly triggered by the German law enforcement agency Bundeskrimanalamt (BKA), which started selling Bitcoin on exchanges and caused high-volume selling from different types of investors.
According to Bitfinex, there are multiple reasons why Bitcoin should stop bleeding soon.
U.S. and Germany dumped only 4% of all BTC bought and sold since 2023
One reason is that despite the sizeable nominal value of BTC transferred to exchanges by the German government, as a proportion of all Bitcoin bought and sold since 2023, it is a relatively small number.
According to the analysts, the realized capitalization of Bitcoin flowing into the market since 2023 — or the value of BTC bought and sold — amounts to $224 billion.
“This compares to only $9 billion from Bitcoin that was seized and subsequently sold by governments, including that from the United States and Germany,” Bitfinex analysts wrote, adding that the amount makes up only 4% of the total cumulative realized value since 2023.
“Despite the large nominal value, the actual number of Bitcoins transferred to exchanges amounts to only hundreds of millions of dollars, which suggests that the real market impact and the supply overhang from government-seized Bitcoins are relatively minimal,” the report noted.
Low SOPR and negative funding rates often mark the bottom of price corrections
Other factors potentially suggesting that Bitcoin might be bouncing in the near future is the drop in the spent output profit ratio (SOPR) coupled with negative funding rates.
SOPR is a financial metric that gauges the realized profit or loss on a given day for wallets falling under a specific cohort of investors. It is calculated by comparing the combined USD value of all coins spent to the value of these coins when they were initially acquired.
According to Bitfinex’s research, SOPR for short-term holders reached 0.97 as of July 6, indicating that short-term investors are not selling at a loss.
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The average funding rate across all BTC perp trading pairs has also flipped negative for the first time since the bottom on May 1.
“Historically, periods of negative funding rates combined with low short-term SOPR values have often marked the bottom of price corrections,” Bitfinex wrote, adding:
“Negative funding rates suggest that selling pressure is high or sellers are dominating the market, but it can also indicate that the market is oversold. When this oversold condition aligns with a recovering SOPR, it often signals that the market is finding a floor.”
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