The price of bitcoin (BTC) opened lower this week and broke the support of $ 30,000 this Tuesday, July 20. Thus, the optimistic forecasts of recent weeks seem not to be fulfilled, with the possibility of consolidating a downtrend that seemed to slow down with the cryptocurrency lateralizing for a prolonged period.
Analysts who previously envisioned a speedy recovery for the main cryptocurrency in the market, now began to consider less promising scenarios. Among them, the Glassnode team, who in their most recent weekly report assessed the bearish outlook for BTC.
The report, published this Monday, July 19, sets out four main reasons that could trigger a bearish scenario for bitcoin, among which are the loss of interest from institutional investors, the low activity in the Bitcoin network and price ranges with weak supports according to their volume.
Grayscale and the decline in institutional interest
As Glassnode points out, this last section of July is key for the future performance of the price of bitcoin, if the impact of institutional investments in the market recently is taken into account.
The expiration of contracts for tens of thousands of bitcoins in the investment fund of Grayscale has been in the sights of various analysts in recent weeks, as a possible catalyst for a large price movement, as reported by CriptoNoticias.
And if the release of those BTCs to the market is mixed with a decrease in the interest of institutional investors, that movement seems to point to the downside. Above all, the research says, “considering institutional demand flows that continue to be a necessary source of capital inflows to achieve and sustain higher valuations.”
There are various indicators that show how the investment of institutional clients in bitcoin is weakening, as the Glassnode report shows. Among them, Grayscale itself stands out, whose product based on the cryptocurrency (the GBTC) has been trading “at a discount” with respect to bitcoin, in a range of 10% to 15%.
As one of the graphs presented by Glassnode shows, GBTC trading has been at a discount since March. In the months leading up to the push that led BTC to peak above $ 64,000 in April, GBTC traded more expensively, up 15% at an all-time high.
While the current percentage shows a recovery from the time of last May’s dip, analysts suggest that “any significant and persistent discount suggests lackluster demand and may also attract capital outside of the BTC spot markets.” In summary, bitcoin is currently less valuable in the eyes of institutional investors.
GBTC, Grayscale’s bitcoin investment product, is traded at a discount. Source: Glassnode.
Also from the point of view of institutions, the research highlights a large outflow of BTC from Purpose’s exchange-traded fund (ETF) and the increase in the holding of bitcoins on OTC (over-the-counter) exchange platforms, reversing the trend of withdrawals that was in force since November 2020.
“It remains to be seen if this net inflow is just a short-term shock, or the first signs of a reversal in the balance of supply and demand” for the bitcoin market, analysts mused.
Weak support below $ 30,000
Almost 2 million bitcoins were last moved in a price range between 31,000 and 34,300 dollars per unit. This equates to 10.5% of total BTC in circulation, Glassnode notes.
That range, in the opinion of the researchers, represents a support node for the cryptocurrency. One much lower than the previous node, however, since an important range was between $ 50,000 and $ 60,000 before bitcoin’s 50% drop in two weeks in mid-May.
Although that range exposed in the report could seem like good support so that the price of the cryptocurrency does not fall, the analysis points in another direction. Mainly because “the market is trading at the lower end of this support node and there are few levels of support” below those prices.
In fact, the firm’s records place a next support as low as 18,800 dollars per coin. This could be perceived as an indicator that the future of BTC in the market is not as promising as a large number of analysts had been hoping for the last few months.
Bitcoin is below its previous support range of $ 31,000 to $ 34,000. Source: Glassnode.
Low activity on the Bitcoin network
The third sign of a bear market in the making is found in an unusual place. Although it is mostly considered bullish behavior, the little activity in the Bitcoin chain seems to indicate a decrease in the demand for the use of the network and is part of the bearish case that Glassnode currently raises.
“This shows that there is a relatively low demand for value settlement” in the Bitcoin chain, say the analysts, who highlighted a significant decrease in transactions, the weight of blocks and the volume traded daily.
At the moment, some 5.3 billion dollars are being settled daily, with a fall of more than 65% compared to the peak of the second quarter of this year. The figure, which corresponds to the 14-day exponential moving average, is shown in a graph that we insert below:
Fall in the volume traded daily on the Bitcoin network. Source: Glassnode.
Although the drop in volume, measured in dollars, seems logical, current levels are even below those of January, when bitcoin was just beginning its run towards $ 30,000, first, and the peak of $ 64,000 in mid-April.
Bitcoin block space demand and on-chain settlement is low, mined blocks are not full, and network utilization is relatively low
Indeed, Bitcoin blockchain explorers, such as mempool.space, show little network congestion. Currently, he is with the lowest congestion levels in the last six months, despite the recent decline in miners’ processing power.
The Bitcoin network is decongested as it has not been this year. Source: mempool.space.
The few bitcoins that move, do so at a loss
“Of the volume of transactions that is settled, a dominant majority seems to be of currencies that register losses”, highlights the report as a last indicator towards a bear market.
Bitcoins that move do so mostly at a loss. Source: Glassnode.
In the graph above, the analysis firm shows how currently a large majority of the BTC that move every day do so at lower prices than when they entered their respective wallets.
In other words, people are trading their currencies at a loss more than twice as often as they are at a profit. The current average is some 353 million dollars at a loss, against 158 million dollars in daily earnings.
If we compare the total value of the realized gains and losses, we see that the losses (pink) have been consistently greater than the gains (green) since the settlement in May
Glassnode, on the profit and loss graph.
Added to that, 33% of the BTC supply that is in “hold”, without moving, it is below the value it had at the time it arrived at your current addresses. Savers keep their BTC at lower prices than what they bought, according to that indicator.
33% of the BTC supply is in unrealized losses right now. Source: Glassnode.
The report qualifies the fact that those immobile BTC represent “unrealized losses.” Or what is the same: they are not really losses as long as they are not sold at current prices. “These coins can form a higher resistance and a pressure of sale”, adds the text.
While the scenario posed by Glassnode looks grim, the firm does not rule out a more optimistic future for bitcoin. In its weekly report, the firm also analyzes some of the factors that could point towards a more promising outlook for bitcoin, which we will expose in depth in another report through CriptoNoticias.