Bitcoin (BTC) is currently in a consolidation phase, leaving many investors uncertain and fearful of further price declines. The latest Bitfinex Alpha report reveals that BTC is hovering around the $37,000 price range, showing signs of diminishing momentum. Additionally, positive funding rates on futures contracts, which have historically been associated with market declines, add to the apprehension surrounding BTC’s future.
Apart from the decreasing momentum and positive funding rates on futures contracts, BTC faces the potential for selling pressure from short-term holders looking to realize profits. After four consecutive weeks of positive price movements, BTC recently experienced its first negative weekly close. The leading digital asset made a powerful surge past the $38,000 mark, only to have its rise cut short by trading activities in the futures and spot markets.
The Cumulative Volume Delta (CVD) metric for the futures market showed a negative reading as BTC’s price rose following the surge, indicating substantial profit-taking by market participants. This observation is further supported by an 8.7% decrease in open interest, a clear sign that traders were locking in profits. The spot market also witnessed a significant influx of limit sell orders, contributing to BTC’s struggle to maintain its upward momentum.
Bitcoin’s Increasing Volume
Bitcoin’s fall back to $38,000 led to the highest hourly trading volume observed since the beginning of the month, during its initial surge to that price range. Bitfinex warns investors to tread cautiously, highlighting that while the current phase may appear to be a cooling-off period following BTC’s recent bullish trend, uncertainty remains.
Interestingly, major altcoins have outperformed BTC, rallying while the leading digital asset experiences a concentration of supply among different investor groups. On-chain analysis reveals a significant tightening of BTC’s supply as the fourth halving event, expected in April 2024, approaches. Bitfinex notes that there is a higher proportion of long-term holders compared to past cycles, indicating a greater concentration of supply in their hands.
The available supply of BTC, which represents the amount of BTC circulating and accessible for trading, and the supply storage, which indicates the amount of BTC held by long-term investors, suggest that long-term holders are accumulating BTC at a rate higher than the pace at which new BTC is produced. The supply storage rate even exceeds the new BTC issuance by over 200%, highlighting unprecedented levels in history.
Bitcoin’s current price consolidation phase raises concerns among investors. The diminishing momentum, positive funding rates on futures contracts, and selling pressure from short-term holders contribute to the uncertainty surrounding BTC’s future. Furthermore, the concentration of supply among long-term holders and the significant tightening of BTC’s supply indicate a shifting landscape for investors. As Bitcoin continues to navigate these challenges, caution is essential in approaching this ever-evolving market.
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