If one word could be used to describe how most participants in the cryptocurrency ecosystem feel about the short-term outlook for Bitcoin (BTC), it would be ‘indecisive’ as mixed signals from all kinds of indicators make that many traders wait for significant movement in either direction before planning their next entry point.
A new report from Delphi Digital macro analyzed the current Bitcoin price action and found that a variety of factors, including low trading volumes and the strengthening US dollar, have weighed heavily on the major cryptocurrency.
BTC / USDT 1-day chart. Source: TradingView
Bitcoin’s recent drop to $ 31,000 adds to the aura of fear currently engulfing the crypto market and analysts are now warning that if it doesn’t close above $ 31,000, BTC could fall to the $ 29,000 to $ 24,000 zone.
Here are three areas of focus that Delphi Digital highlights as the most impactful in short-term price action for Bitcoin.
Detect volumes and collapse of open interests
According to Delphi Digital, declining business activity is one of the biggest factors affecting the market. This is because after the May 19 sell-off there was an exodus of spot and derivatives traders from exchanges.
Cash exchange volume. Source: Delphi Digital
As seen in the graph above, after seeing a substantial increase during the first half of 2021, trading volumes have dropped more than 60% as prices collapsed and traders stopped using leverage.
The precipitous drop in the price of BTC also helped manipulate the use of high leverage by retail traders in the derivatives markets and the proof of this comes from the open interest in BTC futures reversing to levels seen since. early 2021.
Delphi Digital said:
“This purge has caused significant damage to the structure of the bull market, with a futures base close to 0% and depressed funding rates for perpetual contracts.”
On a more positive note, the mega sell-off event seen in May helped weed out over-leveraged traders, meaning that “the strongest participants are the ones that are primarily contributing to the current open interest levels.”
Dollar strength leads to BTC weakness
Another factor weighing on the price of Bitcoin has been the recent strength of the US dollar, which has been in an uptrend since it bottomed at 89.53 on May 25.
1-day DXY chart. Source: TradingView
As seen in the chart above, a large reverse head and shoulders pattern has formed on the DXY chart and the neckline is now being tested for the third time.
Should the dollar go up another leg, the current economic recovery could be threatened as financial conditions tighten and this could weigh heavily on many of the most popular trades of 2021.
Delphi Digital said:
“Commodities, gold, emerging market stocks, Bitcoin are all vulnerable to a strengthened dollar, although the speed of their movement also remains a critical factor.”
Bitcoin price falls to long-term support
While the 51% drop in the price of BTC has many analysts fearful that another multi-year bear market may be starting, it is important to be aware of some of the more important macroeconomic trends that led to current conditions.
Bitcoin returns month by month. Source: Delphi Digital
The chart above shows that Bitcoin had six consecutive months of price gains before a recession and the asset was supposed to pull back from a historical perspective.
Even with BTC down 51% from its all-time high, year-over-year, its price is still 250% higher than its valuation of $ 9,100 on July 16, 2020.
Bitcoin’s long-term uptrend remains intact with its price currently testing the 12-month moving average, a major level of support that will determine where the price goes from here.
BTC / USD vs. 1-month chart of 12-month moving average. Source: Delphi Digital
Bitcoin’s trading volume on spot and derivatives exchanges has declined and the prospects for a strengthened dollar weigh heavily on global financial markets. This has resulted in indecision being the main emotion governing the cryptocurrency market at the moment and this sentiment is likely to persist until a major price movement or motivational event triggers engagement from marginalized traders.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade move involves risk, you should do your own research when making a decision.