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Bitcoin’s recent price action has flashed a contrasting signal to that delivered by the network’s fundamentals – a situation that has birthed row-backs on some analysts’ previous forecasts on the cryptocurrency. The BTC/USD pair has slipped below $20,000 on several occasions this week and is at present down 6.50% in the past seven days. The decline, triggered by last Friday’s hawkish remarks from Fed Chair Jerome Powell on the pain of inflation, has erased multiple weeks of upside. Bitcoin price is now hovering around June’s closing price.
September is historically bearish
Bitcoin (BTC) closed a second consecutive bearish week on Sunday with -9.03% weekly returns, data from Coinglass shows. The negative close quashed the confidence of traders hoping for a trend reversal after the -11.49% returns in the preceding week. Overall, the price of Bitcoin retraced by 13.88% in August.
This latest display of weakness has caused uncertainty in the market, where traders have suffered mild losses in the wake of volatile price swings. Coinglass data shows that about $180 million worth of Bitcoin long and short trades (in almost equal proportion) have been liquidated since Monday.
Notably, the month of September has historically yielded negative returns and if past cycles are anything to go by though, the king cryptocurrency could be set for more losses. Coinglass data shows that Bitcoin has registered lower monthly closes in September consecutively for the last five years. The negative returns have ranged between 5% and 7%, with September 2019, which saw Bitcoin shed 13.48%, being the exception. Also worth noting, on four of these five occasions, Bitcoin has bounced back with double-digit gains, the two most significant being 47.81% in Oct 2017 and 39.93% in Oct 2020.
‘Hodlers’ march on
Resilience has remained high as investors scramble to adjust their portfolios, as far as cryptocurrencies are concerned, to cope with the bearish market. Many BTC holders have resisted the pressure to sell their coins despite the asset’s heavy value erosion. The BTC pair is currently 70% below November’s all-time high – a decline accentuated by the 56.83% year-to-date correction.
Crypto tracking platform, Glassnode, reported on Thursday that the Bitcoin amount of supply last active 5 to 7 years ago is at a 21-month high of 963,787 BTC.
A recent update also shows that the percent supply show last activity was more than five years ago is at an all-time high of 24.55%, while the percent supply last active for more than one year has been observed at a record high of 65.749%. This accumulation reflects in the total hodled or lost BTC volume, which is also at a 21-month high of 7,456,375.793 BTC.
The hodling, if anything, appears to be strengthened by the slowing selling pressure as witnessed across August. Glassnode reported that BTC exchange deposits (under 7-day moving average) fell to 1,921 BTC on Aug 25 – the lowest figure of this metric in over two years.
Bitcoin supply in loss registers one-month high
Bitcoin (BTC) price action this week indicates that the holders’ resolve remains on test in September. The flagship crypto has stagnated marginally above $20,000 amid threats of more downside on the back of tightening Federal Reserve action. The Bitcoin supply in loss (under 7-day MA) was on Sept 1 spotted at a monthly high of 18,869,044 BTC. The percent supply in profit, on the other hand, is at a 1-month low of 52.710%.
This week’s sell-off has inspired a change in tune of Bitcoin price predictions among investors, including Tallbacken Capital CEO Michael Purves, who opined in an Aug 30 interview with Bloomberg Technology that the asset has lost its stability. This, he ascribed to the correlation with stocks which has continued manifesting as more institutional investors embrace cryptocurrencies. Purves, keen to point out that his view was not shaped by its fundamentals, forecasted the price to plunge further towards $15,000.
“What really got me bearish was really, again, nothing to do with a fundamentally bearish view or a fundamentally bull view. It was simply the fact that longer-term momentum was really starting to break in in late January,” he said.
Certainly, Bitcoin’s price movement has increasingly become synced to that of traditional markets, making it less desirable as an inflation n hedge. US equities performed poorly in August, while the overall returns in 2022 remain unimpressive. Infact, thus far, 2022 has been the worst-performing year for equities markets in at least five decades, according to analysts at Bespoke Investment Group. The decline is comparatively worse given that both stock and bond-market have retraced as opposed to other years when only the former tumbled.
Bitcoin mining metrics signal confidence in a price breakout
Bitcoin started the month struggling to get off on the right foot. The BTC/USD 30-day price chart shows that it has been unsuccessfully in its attempts to break out of resistance. Notwithstanding, some maintain that it has in it a potential near-term rally. The group contends that the recent sell-off presents a decent opportunity to acquire the asset before it embarks on an uptrend. This view is shared by analysts who have projected that BTC price is due to gains in Q4, including Bloomberg Intelligence’s senior commodity strategist Mike McGlone.
Industry experts in favor of a bullish outlook highlight recent mining difficulty and hash rate figures. Bitcoin mining difficulty is hovering close to a record high as per data from on-chain statistics and fundamentals platform BTC.com. The network difficulty rose to its second highest level on record this week -30.98 trillion, as of block height 751,968 – propelled by a 9.3% increase on Aug 31. A similar trend was also observed for Bitcoin’s hash rate, which stood at 221 exahashes per second (EH/s) at the time of writing – close to the record-high of 223 EH/s on May 11 for which the difficulty level was 31.25 trillion.
The 7-day average hash rate ranged at 224.7 EH/s on Tuesday as per blockchain.com data, up from 197.7 EH/s when the previous difficulty adjustment occurred a fortnight ago.
The swelling figures after an extended capitulation period indicate that miners are optimistic about long-term profitability, that can only be guaranteed by a Bitcoin price recovery.
To learn more, visit our Investing in Bitcoin guide.
Sam is a financial content specialist with a keen interest in the blockchain space. He has worked with several firms and media outlets in the Finance and Cybersecurity fields.