Bitcoin has recently experienced a significant drop in price, reaching a new monthly low and causing concern among investors and traders. Understanding the reasons behind this decline is crucial for those involved in the market. Several factors have contributed to this downward trend, including miner activities, Federal Reserve policies, lack of new inflows, and market indicators. Let’s explore the key factors driving this decline.
One of the key factors behind Bitcoin’s decline is the selling pressure from miners. There has been a noticeable increase in selling from older wallets, mainly held by miners. This trend follows the recent Bitcoin halving event, which reduced daily production from 900 to 450 Bitcoins. QCP Capital’s market analysis highlights that Bitcoin miners are facing significant selling pressure due to increased break-even prices after the halving. Miner holdings of Bitcoin have reached their lowest point in 14 years, with total reserves declining by 50,000 since the beginning of the year. Miners have sold over 30,000 BTC, equivalent to around $2 billion, primarily on exchanges, contributing to the price drop.
Additionally, the German government has moved $600 million worth of Bitcoin to exchanges and sold $200 million in a single day. With holdings of approximately $3 billion in Bitcoin, this sudden sell-off is unusual and may be driven by financial requirements amid economic pressures.
Another crucial factor influencing Bitcoin’s price drop is the Federal Reserve’s recent liquidity reversal. Bitcoin’s price has historically shown a strong correlation with the Federal Reserve’s liquidity conditions. When the Federal Reserve injects liquidity into the market, Bitcoin tends to benefit from increased capital flow. Conversely, when liquidity is withdrawn, it often negatively impacts Bitcoin’s price. In the past two weeks, the Federal Reserve’s liquidity has turned negative, directly impacting Bitcoin’s price as less liquidity means less capital available for investment in cryptocurrencies.
Bitcoin ETFs have also experienced a drop in inflows, contributing to the recent price drop. U.S.-listed spot Bitcoin ETFs have reported five consecutive days of outflows, totaling over $900 million for the week. Grayscale’s GBTC and Fidelity’s FBTC have seen significant outflows, while other ETFs have shown minimal net activity. This lack of new inflows indicates that investors are withdrawing their funds from these ETFs, putting additional selling pressure on Bitcoin.
Furthermore, the Inter-Exchange Flow Pulse (IFP) indicator, which measures the flow of Bitcoin from spot exchanges to derivative exchanges, has been declining. A decreasing IFP suggests that more Bitcoin is being sent to spot exchanges, which is typically a bearish signal.
Interestingly, Bitcoin has shown a tendency to reach a bottom in June over the past few years. Since 2020, Bitcoin has found a bottom in June, and some analysts believe this pattern could repeat itself. However, Bitcoin has always rebounded following the bottom, and it remains to be seen if this trend will continue.
In terms of Bitcoin’s price outlook, it has dipped below the $64,500 support level, resulting in a strong bearish momentum. The price has broken several Fib levels and declined to around $60,800. For bulls to regain control, they must push the price above the moving averages, potentially leading to a rise towards $63K and then $64,500. However, strong resistance is expected around $65K-$66K. On the other hand, if the price fails to maintain above current levels or the moving averages, it could signal continued negative sentiment and potentially trigger a deeper correction below $60,000.
In conclusion, several key factors, including miner activities, Federal Reserve policies, lack of new inflows, and market indicators, have contributed to Bitcoin’s recent decline in price. Understanding these factors is crucial for anyone involved in the market, as they can provide insights into the future price movements of Bitcoin.
