Why is Bitcoin Price Stuck?
Date: 2024-09-03 Author: Gabriel Deangelo Categories: CRYPTO PAYMENTS
Bitcoin has been trading in a tight range for nearly a week now as traders weigh conflicting market signals, including potential billion-dollar selling pressure from the U.S. government and failed cryptocurrency exchange Mt. Gox.
Mt. Gox and U.S. Government to Issue 249,000 BTC
Since August 28, Bitcoin has been trading in a range bounded by resistance at $60,200 and support at $57,300, indicating traders are unsure about the next possible direction of the market.
One of the key reasons for this impasse is mixed fundamental signals from the market.
On the bearish side, the U.S. government and Mt. Gox is set to release an additional 249,000 BTC (~$14.53 billion) of Bitcoin into the market in September. If the market has trouble absorbing this new supply, this influx of Bitcoin could put downward pressure on the price.
On the other hand, a potential catalyst is the upcoming US Federal Reserve meeting on September 19. If the Fed cuts interest rates, it could spur demand for non-yielding assets like Bitcoin.
These mixed signals – an increase in supply and the possibility of increased demand – are contributing to the current standoff between bulls and bears in the Bitcoin market.
Bitcoin Profitability Reaches Equilibrium
Bitcoin’s price has plateaued as the market has reached an equilibrium point in terms of investor returns, according to Glassnode.
For those unfamiliar, the Market Value to Realized Value Ratio (MVRV Ratio) is a useful metric for estimating the average unrealized profit of investors. Over the past two weeks, it has been hovering around its annual average of 1.72, a key level that often signals a change in trend between bull and bear markets.
When the MVRV ratio is hovering around this level, it often indicates neutral market sentiment, without strong bullish or bearish momentum. In other words, investors are less motivated to buy or sell as the potential for large gains or losses decreases, leading to a period of consolidation and price stagnation.
Bitcoin Open Interest Falls to 2-Week Lows
Bitcoin’s sideways price action also coincides with a drop in open interest (OI) and funding levels in the futures market.
Open interest fell from over $30 billion to about $29.48 billion during the sideways price action from August 28 to September 2. During the same period, Bitcoin’s funding rates — calculated every eight hours — fluctuated between positive and negative levels.
This decline in open interest suggests a lack of confidence among traders as fewer new contracts are being opened. This reflects a wait-and-see approach, with market participants hesitant to take on new positions due to the lack of clear directional momentum.
Meanwhile, Bitcoin funding rates are fluctuating between positive and negative levels, showing a lack of clear preference for long or short positions in the futures market.
So the combination of declining open interest and volatile funding rates reinforces the idea that the market is indecisive. Traders are likely to be on the sidelines, waiting for a clear catalyst to push the price in a certain direction.
