Bitcoin’s Bullish Resilience. July 2024 Key Indicators and Market Movements

Bitcoin has faced significant challenges recently, with price fluctuations and external market pressures. However, key indicators and market strategies hint at a potential recovery. This article explores Bitcoin’s recent performance, the impact of government liquidations, and the bullish signs pointing towards a resurgence.

Bitcoin’s Recent Volatility

Bitcoin’s price dropped 7% on July 8, hitting $53,354. This decline led to the liquidation of $62 million in leveraged longs. Yet, in less than 8 hours, Bitcoin rallied 7% to $58,215, catching short sellers off guard and forcing the termination of $96 million in short positions. This swift recovery reflects Bitcoin’s inherent volatility and the high-stakes nature of leveraged trading.

Data from CoinGlass indicates that the liquidation data revealed high leverage, possibly 20x or more. This rapid shift highlights the intense market dynamics and the pressure on traders to manage their positions carefully. Despite the drop, Bitcoin’s derivatives market shows moderate bullishness, suggesting optimism for reclaiming $60,000 soon.

Cryptocurrency analysts believe that the German government’s transfer of 16,308 BTC to market makers and exchanges played a role in the recent price movements.

Image courtesy of X user RookieXBT

However, this selling pressure seems to be decreasing, providing a silver lining for Bitcoin bulls. With half of the seized coins already sold, the remaining sales might not impact the market as heavily.

Government Liquidations and Market Reactions

The German government has been actively selling its seized Bitcoin. On July 4, they moved $175 million worth of Bitcoin to exchanges like Kraken, Bitstamp, and Coinbase. Despite these sales, Germany still holds over 40,000 BTC, valued at more than $2.3 billion. This strategy contrasts with the past, where governments preferred auctions for such assets.

Arthur Cheong, Founder of DeFiance Capital, questions why governments have shifted to market sales. Clean Bitcoin from auctions could fetch a premium, making this move puzzling. Matthew Kaye of Intuition Systems suggests that governments might prioritize quick sales over maximizing returns due to fiscal needs or lack of expertise in managing complex sales.

The market response to these sales has been mixed. Tron founder Justin Sun offered to buy the remaining Bitcoin from the German government off-market to minimize price impact. This highlights the industry’s concern over large-scale sales and their potential to depress prices. Additionally, the impending Mt. Gox Bitcoin distribution adds another layer of complexity, with creditors potentially selling their reclaimed assets.

Bullish Indicators Amidst Uncertainty

Despite the recent price drop, several indicators suggest a potential recovery for Bitcoin. Rising interest rate cut probabilities in September could support Bitcoin’s bull run. As of July 7, Wall Street traders saw a 72% chance of the Federal Reserve cutting interest rates by 25 basis points, up from 46.60% a month ago. Lower interest rates generally bode well for Bitcoin and other riskier assets.

U.S.-based Spot Bitcoin exchange-traded funds (ETFs) saw inflows after two days of outflows. On July 5, when weak unemployment data was reported, these funds collectively attracted $143.10 million worth of BTC. This signals a rising risk sentiment among Wall Street investors, with the Fidelity Wise Origin Bitcoin Fund leading the inflows with $117 million.

Further support comes from the recent increase in the U.S. M2 money supply, which includes cash, checking deposits, and easily convertible near-money. As of May 2024, the M2 supply grew by approximately 0.82% year-over-year, reducing its aggregate drop from a peak decline of 4.74% in October 2023 to around 3.50%. This growth is bullish for Bitcoin as it increases liquidity, leading to higher investments in riskier assets when traditional investments offer lower returns.

Miner Capitulation and Market Stability

Bitcoin miner capitulation metrics are nearing levels seen during the market bottom following the FTX crash in late 2022. Miner capitulation occurs when miners reduce operations or sell part of their mined Bitcoin to stay afloat. Over the past month, Bitcoin’s price fell from $68,791 to as low as $53,485, accompanied by a significant decline in Bitcoin’s hashrate by 7.7%, reaching a four-month low of 576 EH/s.

As weaker miners exit the market or scale back, more competitive miners will see bigger profits, potentially stabilizing their operations and reducing the need to sell BTC. This process could help stabilize Bitcoin’s price and reduce selling pressure, contributing to a healthier market environment.

The futures and options markets also support Bitcoin’s bullish outlook. Monthly contracts typically trade at a premium of 5% to 10% over spot markets due to their longer settlement periods.

Bitcoin 3-month futures annualized premium. Source: Laevitas.ch

Data from Laevitas.ch shows the annualized premium for BTC futures stabilized near 8% since July 7, indicating a neutral sentiment despite the recent price decline.

Conclusion

Bitcoin has demonstrated resilience despite recent price drops and market pressures. Government liquidations and external factors have influenced market dynamics, but key indicators suggest potential recovery. Rising interest rate cut probabilities, ETF inflows, increased money supply, and miner capitulation metrics all point towards a bullish outlook for Bitcoin. As the market adapts to these changes, Bitcoin’s inherent volatility and the strategies of traders and investors will continue to shape its future trajectory.
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