By: Joshua Aldio, Business Associate
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Fifty-one days have passed since Bitcoin (BTC) last closed above $24,000, causing even the most bullish trader to question whether a sustainable recovery is feasible. However, despite the lackluster price action, bulls have the upper hand on Friday’s $510 million BTC options expiry. Investors have been reducing their risk exposure as the Federal Reserve raises interest rates and unwinds its $8.9 trillion balance sheet. As a result, the Bloomberg Commodity Index (BCOM), which measures price changes in crude oil, natural gas, gold, corn, and lean hogs, has traded down 9% in the same period.
Traders continue to seek protection via U.S. Treasuries and cash positions. San Francisco Fed president Mary Daly said on Aug. 2 that the central bank’s fight against inflation is “far from done.” That said, the tighter monetary impact on inflation, employment levels, and the global economy is yet to be seen.
Bearish bets are mostly below $22,000.
Bitcoin’s recovery above $22,000 on July 27 surprised bears because only 28% of the put (sell) options for Aug. 5 have been placed above such a price level. Meanwhile, Bitcoin bulls may have been fooled by the $24,500 pump on July 30, as 59% of their bets lay above $25,000.
A broader view using the 1.60 call-to-put ratio shows more bullish bets because the call (buy) open interest stands at $315 million against the $195 million put (sell) options. Nevertheless, as Bitcoin currently sits above $23,000, most bearish bets will likely become worthless.
For instance, if Bitcoin’s price remains above $23,000 at 8:00 am UTC on Aug. 5, only $19 million worth of these put (sell) options will be available. This difference happens because there is no use in a right to sell Bitcoin at $22,000 or $20,000 if it trades above that level on expiry.
Bears have less margin required to suppress Bitcoin price.
Bitcoin bulls need to push the price above $24,000 on Aug. 5 to secure a $90 million profit. On the other hand, the bears’ best-case scenario requires pressure below $22,000 to set their gains at $75 million.
However, Bitcoin bears had $140 million leverage short positions liquidated on July 26-27, according to data from Coinglass. Consequently, they have less margin required to push the price lower in the short term.
The most probable scenario is a draw, causing the Bitcoin price to range between $22,000 and $24,000 ahead of the Aug. 5 options expiry.
Bitcoin Technical Analysis
We foresee Bitcoin forming a bearish continuation pattern called ascending broadening wedge. The bearish movement might occur if the pattern breaks out, but it is still a long way to go as we can see that Bitcoin also has strong support and gives us another bullish bias to reach the nearest resistance at $24,600.
We can see on the chart above the RBS (resistance become support) level and multiple support areas that give us a bullish bias.
Bitcoin on-Chain Analysis:
Bitcoin Activity Grinds Sideways
Generally speaking, an influx of new demand into blockchain networks is supported and signaled by sustained uptick in usage on-chain. As a guide, we can use on-chain activity and supply dynamics to assess performance relative to recent comparable history.
- Bullish Impulses tend to be described by rising and elevated on-chain activity as more users enter the network. Generally, this is supported by increasing supply volumes changing hands at a profit as older investors sell, and new demand absorbs these coins.
- Bearish Impulses tend to see declining on-chain activity, often in a violent and rapid flush. Bear markets then take time to recover as supply rotates from speculators back to long-term and high conviction holders.
Bitcoin active addresses remain firmly within a well-defined downtrend channel 🔴. Note also how the Oct-Nov ATH 🔵 reached a significantly lower peak than the April 2021 ATH, suggesting a significant washout of users had occurred, and demand did not follow through.
With the exception of a few activity spikes higher during major capitulation events, the current network activity suggests that there remains little influx of new demand as yet.
The need for on-chain transactions and blockspace tells a similar story. The market structure of the last year is quite similar to the 2018-19 period (shown in 🔵).
After the initial wash-out in and demand destruction May 2021 🔴, transactional demand has traded sideways to slightly lower, indicative that only the stable base of higher conviction traders and investors remain.
As a result of lacklustre transaction demand, on-chain transaction fees are firmly within bear market territory 🔵, seeing only 13.4 BTC in total fees paid per day. Similar to active addresses and transaction demand, the demand destruction 🔴 is visible in May 2021, as network congestion collapsed and prices started forming a bear market baseline.
Bull markets typically maintain elevated fee rates 🟢 and often are one of the first signals of demand recovery. While we have not seen a notable uptick in fees yet, keeping an eye on this metric is likely to signal recovery.
To Holding BTC Right Now
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