Despite Bitcoin (BTC) price volatility and five-month lows, several key indicators still suggest that bulls are likely to prevail, suggesting that an uptrend is likely to return to the BTC price trajectory.
BTC rebound prospects rise as bullish divergence
Bitcoin has had a tumultuous start to the month, falling over 10.50% as of July 7, hovering around $57,000. The lowest point was when BTC reached $53,550, driven by fears of a market crash as Mt. Gox continues to refund over 140,000 BTC to customers and the German government liquidates BTC.
The recent Bitcoin price decline has been accompanied by a growing divergence between the falling price and the rising Relative Strength Index (RSI). This divergence generally indicates that selling pressure is weakening, even though the price continues to plunge.
In technical analysis, this scenario often suggests that the current downtrend is likely to reverse or slow down, which suggests that Bitcoin could soon experience a rebound as market sentiment turns bullish again.
Bullish Hammer, Oversold RSI
Two other classic technical indicators support the bullish reversal scenario. First, Bitcoin formed a bullish hammer candlestick pattern on July 5, which is characterized by a small body at the top of the daily candle, a long lower shadow, and a small upper shadow. A similar situation occurred in May.
Second, Bitcoin’s daily RSI reading is hovering around the oversold threshold of 30, which often precedes a consolidation or recovery period. Analyst Jacob Canfield predicts that this indicator could signal a rebound, with BTC potentially returning to “previous range highs” above $70,000.
Wall Street Bet on September Rate Cut Rise
With interest rates likely to rise in September, there is a greater chance that Bitcoin will resume its bull run in the coming weeks.
According to data compiled by the CME, as of July 7, Wall Street traders see a 72% chance that the Fed will cut rates by 25 basis points, compared to a 46.60% chance a month ago.
Slowing hiring in the U.S. has raised expectations that interest rates will fall.
When the jobs market weakens, the Fed often considers cutting interest rates to stimulate economic activity. Lower interest rates are typically bullish for bitcoin and other risky assets, as they make traditional safe investments like U.S. Treasury bonds less attractive.
Bitcoin ETF Investors Rebound After July Drop
Another bullish indicator for the BTC market is the resumption of inflows into US-based spot Bitcoin exchange-traded funds (ETFs) after two consecutive days of outflows.
According to data from Farside Investors, these funds attracted a combined $143.1 million worth of BTC on July 5 when the US reported weak unemployment data, indicating rising risk sentiment among Wall Street investors.
Fidelity Wise Origin Bitcoin Fund (FBTC) led inflows with $117 million. Bitwise Bitcoin ETF (BITB) recorded net inflows of $30.2 million, while ARK 21Shares Bitcoin ETF (ARKB) and VanEck Bitcoin Trust (HODL) recorded inflows of $11.3 million and $12.8 million, respectively.
In contrast, Grayscale Bitcoin Trust (GBTC) experienced a net outflow of $28.6 million.
The US money supply is expanding again
Bitcoin’s bullish signal comes from the recent increase in the US M2 supply (a measure of the money supply that includes easily convertible quasi-currencies such as cash, checking and savings deposits, money market securities, and other time deposits).
As of May 2024, the M2 money supply has increased by about 0.82% year-over-year, reducing the overall decline to about 3.50% from the peak decline of 4.74% in October 2023.
The increase in M2 supply is bullish for Bitcoin because it increases liquidity in the economy. With more money in circulation, there is more investment in riskier assets like Bitcoin, while traditional investments like savings and bonds have lower returns.
Bitcoin Miner Surrender Suggests BTC Price Bottom
The Bitcoin Miner Capitulation Indicator is approaching levels seen at the market bottom following the FTX crash in late 2022, suggesting a potential bottom for BTC. Miner capitulation occurs when miners reduce their operations or sell some of their mined Bitcoin and reserves to shore up and take profits or hedge their Bitcoin exposure.
Market analysts have highlighted several signs of capitulation in the Bitcoin price over the past month, which fell from $68,791 to $53,550. One notable sign is the significant decline in the Bitcoin hash rate (the total computational power that secures the Bitcoin network).
Related: Government Bitcoin Sales Account for Just 4% of $225 Billion Bull Market Inflows – Analyst
The hashrate fell 7.7% from its all-time high on April 27 to reach a four-month low of 576 EH/s. The drop suggests that some miners are scaling back their operations, reflecting financial stress within the mining community following the halving.
As weak miners exit the market or scale back their operations, competitive miners will see greater profits, potentially stabilizing their operations and reducing the need to sell BTC. These indicators are a sign that the Bitcoin market is bottoming, similar to previous cycles where miner selling and reduced operations preceded market recovery.
This article does not contain any investment advice or recommendations. All investment and trading moves involve risk, and readers should conduct their own research when making decisions.