Bitcoin Market Update
Bitcoin has lost 2.6% in the past day, after a rally to new all-time highs last week on the expectations of a U.S. federal interest rate cut. At the time of writing, Bitcoin is changing hands at $115,192 after having jumped as high as $122,882 only days ago. Analysts said derivatives data shows a wave of profit-taking driving the top crypto’s weekend decline. More than $300 million worth of positions were liquidated due to the minor dip in Bitcoin’s price, according to CoinGlass. An uptick in put-buying activity noted over the last two weeks and near-zero median return for Bitcoin in August in the past 12 years highlight the top crypto’s descent. “Traders are taking a cautious approach,” CryptoQuant’s head of research, Julio Moreno, told Decrypt last week. Derivatives data shows the top crypto’s roughly 3% drop from a weekend high of $118,575 was not a sign of new bearish sentiment, but rather a result of traders closing out profitable positions. The combination of a $350 million decline in open interest and a downtick in volume delta points directly to profit-taking. Uncertainty around the ongoing Russia-Ukraine conflict and the lack of a clear agreement in the recent peace summit are among the key reasons for Bitcoin’s recent drop, Sean Dawson, head of research at on-chain options platform Derive, told Decrypt.
What’s Next?
Dawson expects a “slow down” in inflow for the top two cryptocurrencies after the recent drop. But explained that Fed Chairman Jerome Powell’s speech on Friday is “critical in determining how the bull market progresses for the next three months.” The appointment of President Trump’s nominee, Stephen Miran, to the Federal Reserve’s governing board to fill a temporary vacancy after Adriana Kugler’s departure has become a focal point for analysts. “In light of the recent board changes, J.P. Morgan Global Research now looks for the next Fed rate cut to occur in September,” the firm stated in its August 15 report. This outlook is now in line with the broader market’s tempered expectations, with CME’s FedWatch tool showing an 83.4% probability of a 25 basis-point rate cut in September. A rate cut makes holding cash less attractive, prompting investors to seek higher returns in riskier assets like stocks and cryptocurrencies. This increased demand for risk assets pushes their prices up. Corroborating this bullish outlook is the spot bid and ask delta at 10% depth, which shows a bid-skewed orderbook, hinting that investors are buying the dips. Last time this metric flashed a dip-buying activity on August 2, Bitcoin surged nearly 12% in the next 11 days and hit a record high of $124,545. Due to the combination of supportive macro signals and renewed investor appetite, the overall market outlook remains bullish. Powell’s stance on interest rates, coupled with the Russia-Ukraine peace deal, could restart the bull run. If Powell stands firm on keeping interest rates higher for longer, it could, however, trigger another selling spree, which could lead to a massive liquidation event.