Timothy Morano
26 Sep 2024 13:02
After the Federal Reserve cut interest rates by 0.5%, Bitcoin recovered its short-term cost of ownership benchmark to around $61.9k.
According to Glassnode Insights, Bitcoin (BTC) has recovered its short-term holding cost base of around $61.9k after the Federal Reserve’s 0.5% rate cut. This rally could make technical sense if the price remains above the 200-day moving average at $63.9k.
summation
Bitcoin’s recent price action has somewhat relieved the pressure on short-term holders who were under pressure due to net capital outflows. New investors are showing resilience and realized losses are relatively small, suggesting confidence in the overall uptrend. The perpetual futures market is showing a cautious recovery in sentiment, with demand gradually increasing but still below levels seen during the bull market.
Changes in market slope
After reaching an all-time high (ATH) in March, capital inflows to the Bitcoin network have slowed, reducing price momentum. The market slope has fallen to negative values in recent weeks, indicating that the decline in spot prices is more aggressive than the intensity of capital outflows.
The current market structure is similar to the 2019-2020 period, where Bitcoin experienced a long period of consolidation after a strong rally in Q2 2019.
New direction of capital flow
The ongoing consolidation phase has resulted in the spot price being below cost basis for several subsets of short-term holders since late June 2024. Despite the large number of new investors in the water, unrealized losses are significantly less than those seen during the mid-2021 sell-off and the COVID crash in March 2020.
The rebalancing of short-term holder supply to lower prices indicates net capital outflow from the Bitcoin ecosystem. A comparison of the cost bases of the two subgroups (1w-1m and 1m-3m) shows that the market is experiencing a net outflow regime. However, a sustainable market reversal may be in its early stages.
New investor confidence
During the market correction period, short-term holders tend to succumb to losses as unrealized losses grow. Tracking their behavior around market inflection points can provide insight. New investors have higher confidence in the market compared to previous bearish trends, and their losses are relatively small.
Longside Permanent Premium
The perpetual futures market adds another dimension to understanding the new capital confidence in the uptrend. The futures perpetual funding ratio (7D-MA) shows speculators’ willingness to pay higher rates for long positions. Long-biased leverage has increased relative to the market, but it does not yet indicate strong bullish sentiment.
The cumulative monthly premium paid by long-side contracts has fallen significantly from $120M/month around the March ATH to $1.7M/month in mid-September, and has risen slightly to $10.8M/month today, indicating that the market has cooled considerably during the correction.
Summary and Conclusion
Bitcoin remains in a prolonged consolidation phase reminiscent of late 2019 and early 2020. Capital inflows into the Bitcoin network have slowed since the March ATH, challenging short-term holder profitability. Despite the local period of net capital outflows, new investor confidence remains strong. There has also been a slight uptick in long-side bias in the perpetual futures market recently. Overall, the market has cooled off from the excesses seen in March, but that hasn’t broken the sentiment of many new Bitcoin investors.
Image source: Shutterstock