Why bitcoins [BTC] recovery may be limited despite bullish outlook

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Several macro factors could prevent BTC from a rapid resurgence. The UTXO reported possible prep for a pre-halving hike.

Bitcoins [BTC] the recent rally may have brought hope to many investors and enthusiasts, signaling a potential reversal of the downtrend that has plagued the cryptocurrency market.

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However, short-term investors may need to approach this rally with caution. Indeed, some factors may restrict the revival of Bitcoin, MAC_D, said an analyst at CryptoQuant.

The on-chain analyst mentioned that the outlook for the coins could be significantly limited due to the macro factors. First, he highlighted the US government’s decision to sell some of its holdings.

Down on the reserves

This had a negative impact on Bitcoin US to The Rest Reserve Ratio. The metric considers the country’s entities, including banking assets and exchange funds, against the rest of the entity’s supply.

At press time, the ratio had fallen to 0.90. Thus, the unfavorable economic situation had forced the country to sell a significant part of its long-term assets. This was also coupled with proposals for tougher regulations for the entire crypto market, in turn creating a bearish move.

Source: CryptoQuant

The analyst also referenced the story when hoarding by the US government impacted an incredible increase in the value of BTC. MAC_D wrote,

In the past, when US institutional investors’ holdings of BTC increased during major bull markets, the price rose significantly.

Often touted as a safe-haven asset and hedge against economic uncertainty, BTC has seen a 64% increase on an annual basis since traditional market crises.

If traditional markets experience prolonged instability or a severe downturn, investors may resort to liquidating their Bitcoin holdings to cover losses or meet margin calls, which puts downward pressure on the cryptocurrency.

However, the analyst also cited other reasons that could hamper a quick recovery. This includes the dwindling supply of stablecoins and the lack of smart money traders in today’s market.

Source: CryptoQuant

Preparing for recovery

While he argued that Bitcoin still had good upside potential this year, he also felt that it was likely to follow the up and down performance of 2019 rather than the continued uptrend of 2015.

In another post, oinonen_t noted that lack of liquidity also played a role in BTC’s recent plunge. However, he mentioned that it was more of a technical problem than a fundamental problem.

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Supporting his opinion, the analyst gave an overview of the 200-day moving average (MA). He also compared it to Unspent Transaction Output (UTXO). At press time, the 200 MA, which acts as support for BTC, had deviated, leading to less liquidity in the spot market.

The on-chain data, on the other hand, showed that UTXO was showing signs of prior accumulation after a recent Bitcoin era decline. Therefore, this could tilt BTC towards a technical correction and chain drive for a price increase.

Source: CryptoQuant

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