Bitcoin (BTC) had several stalled rallies in the past months, preventing the leading asset from moving into a higher price range. While accumulation continued, the recent unraveling of leveraged longs could lead to another month of stagnation.
Bitcoin (BTC) bounced quickly from its lows under $50,000 and showed robust buying from whales on the spot market. BTC also rallied above $57,000 and held above $55,000 in the current week. But the bull market timeline may shift significantly, as reaching for a new high may take longer.
BTC traded at $57,272.01, with trading volumes above $39B, down from $100B during the most active day after the crash.
Another month may pass after the recent unraveling of leveraged positions, before enough open interest is able to shift price action again. BTC rallies usually happen in the span of a few short days, but take weeks or months of sideways price action.
Historical data shows that after unraveling leveraged positions and especially after negative funding rates, BTC took about four weeks to move into a higher price range. BTC had two episodes of funding rate resets in Q2, resulting in a long climb to higher price tiers.
The market correction on August 5 led to a period of rebuilding long positions. BTC is currently 60% longs against 40% shorts, though long positions also face a higher rate of liquidations.
BTC also showed that open interest could recover quickly, as seen by the July de-leveraging. Additionally, the open interest crunch affected smaller markets, while baseline activity on Binance sees smaller fluctuations even during turbulent trading days.
BTC awaits bullish sentiment above $58,000
Matthew Sigel, head of digital research at VanEck, showed the trend goes back historically, leading to BTC price stagnation after de-leveraging.
"Table 1 illustrates forward returns after these seven long squeeze events, highlighting that prices tend to stagnate in the month following significant deleveraging of longs, with average forward 30-day returns sitting at -10% to the pre-liquidation event price level. This… pic.twitter.com/q5vhrcGKoJ
— matthew sigel, recovering CFA (@matthew_sigel) August 6, 2024
The biggest problem for BTC is that this places the asset into a longer time frame, to be affected by more chaotic economic and general events. In the meantime, prices may be locked in a small range, to continue liquidating traders at a smaller scale.
In the short term, BTC is looking at the weekly close to determine the shift to a more bullish attitude. Traders see BTC close the week as high as $58,000, after an extremely rapid recovery to the usual price range. The episodes of de-leveraging are also delaying the expected rally to a peak in the $80,000-$100,000 range, based on previous models.
The current price range happens after a 32% drawdown, which is seen as the correction for the 2024 cycle. The price crash on Monday is also viewed as similar to the March 2020 price slide. But after that correction, BTC had more space to double its price in less than three weeks. The current recovery was fast, but it has a low probability of leading directly to an all-time high.
BTC remains the top narrative in 2024
During this market cycle, traders are committed to BTC and avoid rolling into risky altcoins. Instead, more funds are flowing into the top token due to the relatively lower volatility.
BTC increased its dominance to 56.1% of the total market capitalization, a level not seen since 2021. At the same time, Ethereum (ETH) and smaller altcoins shrank their dominance to a total of 32% of the market. Most narratives also saw losses in the current year.
After the recent price correction, retail buyers are also slower to return. Crowd sentiment tends to be more bearish, while smart money wallets immediately returned to buying and delivered a bullish signal.
The market recovery is still relatively fragile, as open interest on Binance is still down to around $5B, from recent highs above $7B. Total open interest declined from $30B at the end of July down to $20B after the market correction.
The BTC fear and greed index also suggests more cautious trading, sliding again to ‘extreme fear’ at 20 points. Spot market is also slowly returning, despite the rainbow chart range that suggests the current BTC price is in the ‘fire sale’ range. BTC is still in demand on the spot markets, after July ended with net inflows to all ETFs, adding $3.16B to the market.
Cryptopolitan reporting by Hristina Vasileva
