Expanding Wedge or Bull Flag? Either Way, Bitcoin Seems to Be Losing Momentum

Some analysts have described Bitcoin’s market structure on a weekly basis as a bullish flag or expanding wedge pattern, which would see BTC make new highs once it completes.

Despite the current price action and the holding of the chart pattern, Bitcoin continues to sell at upper resistance levels and is sensitive to macroeconomic conditions.

In this week’s The Week Onchain Newsletter, Glassnode analysts concluded that Bitcoin’s strength has been weakening as the market has been stuck in a “structurally orderly downtrend” for the past five months. Among other factors, the analysts cited the launch of spot Bitcoin ETFs and the cooling of the market as BTC hit a new all-time high above $73,000, leading to a decline in interest in leveraged positions.

Basically, the market has reached a point where the bullish catalysts that many analysts have long predicted have been confirmed, with the remaining price breakout catalysts being further away in time (i.e. market participants want a spot Trump win, strong resumption of spot BTC and ETH ETF inflows, a sharp Fed cut, and possibly a resumption of quantitative easing).

Yes, on-chain data shows that Bitcoin whales are accumulating within the swing lows of the current price range, and while some technical indicators on the surface predict a bullish outcome given the current market structure, are there data points that investors with a strong bullish bias are overlooking?

Let’s take a quick look at the Bitcoin chart and see the other side of the coin.

Does a decline in highs indicate a loss of bullish momentum?

On the weekly timeframe, Bitcoin price continues to make lower highs as it attempts to break out towards its all-time high. Each breakout fails to establish $70,000 as support, and when contrasted with the rolled MACD, it is clear that some of the key factors that initially drove BTC price to successive all-time highs have evaporated.

Regarding the MACD, the MACD has been below its signal line for several weeks since Bitcoin’s all-time high, and the gap between the MACD and signal line has widened since then. While neither crossed below zero (a bearish signal), the decline in momentum since the all-time high reflects Bitcoin’s price action and the sharp declines in previous market cycles in 2018 and 2021.

A similar result can be seen with the weekly RSI, which did nothing but drop from 88.47 in early March when Bitcoin was trading above $73,000 to 44 on August 5 when prices dropped below $45,000. Without stressing the point, both indicators appear to have been gradually rising since December 2022 as the market emerged from the sell-off, peaking when BTC reached $73,000.

This analysis does not imply that the bull market is over or that what is shown on the chart is absolute, especially considering that Bitcoin’s price action and market structure have a history of changing rapidly based on macroeconomic and geopolitical events. However, in a market where almost everyone is expecting a six-figure all-time high, a Trump victory, or a Fed rate cut to send Bitcoin prices soaring, it is good practice to at least consider outcomes that are contrary to the market’s bullish bias.

relevant: Trump’s Approach to Crypto Voters ‘Seems to Be Paying Off’ – Poll

Traders need to increase their trading volume.

Additionally, total trading volume has also declined, a metric that is consistent with CryptoQuant’s conclusion that Bitcoin’s apparent demand indicators have “slowed down significantly.”

According to CryptoQuant, apparent demand is the difference between the daily total Bitcoin block subsidy and the daily change in the amount of Bitcoin that has remained stable for over a year.

“Demand has declined from 496K Bitcoin, the highest 30-day increase since January 2021, to a current negative growth of 36K. As demand slows, the price has fallen from around $70K to a low of $49K.”

As you can see in the historical volume chart from January 2023 to August 30, 2023, total Bitcoin volume on exchanges has been declining since the hype surrounding spot ETF approvals and the path to new all-time highs.

Futures-led rally against spot demand

The recent Bitcoin price rally has been driven by futures trading, with holders and spot ETFs accumulating a range-bound floor. What will be the next sustainable demand driver in the spot market?

Popular cryptocurrency derivatives analyst Skew explains well why Bitcoin price spikes to range highs are often caused by liquidations in the futures market.

$Bitcoin Market Flow Updates$Bitcoin Aggregate CVD and Delta
Large buyers drove each impulse higher after the low around $56,000.

Offside positioning to $61,000 was met with a massive short squeeze.
– Busy trade is hunted

We are currently experiencing some selling pressure in the spot market… pic.twitter.com/2vJJEKE2BA

— Skew Δ (@52kskew) August 26, 2024

Looking at the overall order book overflow, it is easy to see how spot buying absorbs Bitcoin’s sharp downward moves as forced buying occurs during a short squeeze, but Bitcoin fails to overcome the selling wall that pops up along the range highs due to the lack of sustained spot buying.

From a technical analysis perspective, a particular Bitcoin price may be ping-ponging within a bullish flag or expanding wedge structure, providing traders with predictable accumulation, momentum trading, and short-run bounce opportunities in the $52,000 to $48,000 range.

The expected resistance and take profit zone is in the $62,000 to $67,000 range, but what traders really need to watch out for when this range is breached is a reversal of the trend of decreasing total volume due to a short squeeze in the derivatives markets, a lower weekly high, and a range breakout to a swing high.