Historically low spot volumes and investor indecision weigh on Bitcoin price

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If a word could be used to describe what the majority of participants in the cryptocurrency ecosystem think about the near-term outlook for Bitcoin (BTC), it would be “undecided,” as the mixed signals from all kinds of indicators cause many traders to wait for a major in either direction before planning their next entry point.

A new report from Delphi Digital looked at the current price development of Bitcoin and found that a variety of factors, including low trading volumes and the strengthening US dollar, weighed heavily on the premier cryptocurrency.

1 day BTC / USDT chart. Source: TradingView

Bitcoin’s recent drop to $ 31,000 adds to the aura of fear currently enveloping the crypto market and analysts are now warning that failure to close above $ 31,000 could cause BTC to drop to 29. $ 000 to $ 24,000.

Here are three areas of interest that Delphi Digital highlights as being the most influential on short-term price action for Bitcoin.

Cash volumes and the collapse of open interest

One of the main factors affecting the market is the decline in business activity, according to Delphi Digital. Indeed, after the massive sell-off on May 19, there was an exodus of spot and derivatives traders from the exchanges.

Cash exchange volume. Source: Digital Delphi

As the chart above shows, after experiencing a substantial increase in the first half of 2021, trading volumes fell by over 60% as prices collapsed and traders vowed to use leverage.

The steep fall in the price of BTC has also helped to alter the use by retail traders of high leverage in derivatives markets and proof of this is that the open interest in BTC futures has fallen back to observed levels. since early 2021.

Delphi Digital said:

This purge caused significant damage to the bullish structure of the market, with forward base close to 0% and depressed funding rates for perpetual contracts.

On a brighter note, the mega-liquidation seen in May has helped weed out over-leveraged traders, meaning participants with strong hands are the ones primarily contributing to current open interest levels.

Dollar strength leads to BTC weakness

Another factor weighing on the price of Bitcoin has been the recent strength of the US dollar, which has been on an uptrend since its low at 89.53 on May 25.

1 day DXY chart. Source: TradingView

As shown in the graph above, a large inverted head and shoulders pattern has formed on the DXY graph, with the neckline currently being tested for the third time.

If the dollar rises further, the current economic recovery could be threatened as financial conditions tighten and this could weigh heavily on many of the most popular deals of 2021.

Delphi Digital said:

Commodities, gold, emerging market equities, Bitcoin are all vulnerable to a strengthening greenback, although the speed of its movement remains a critical factor as well. Bitcoin price drops to long term support

While the 51% drop in the BTC price has many analysts fearful that another multi-year bear market is starting, it’s important to consider some of the larger macro trends that have led to current conditions.

Month-to-month Bitcoin returns. Source: Digital Delphi

The chart above shows that Bitcoin saw six consecutive months of price gains before a decline, and the asset was expected to experience a decline from a historical perspective.

Even with BTC down 51% from its all-time high, year over year, its price is still 250% above its valuation of $ 9,100 on July 16, 2020.

Bitcoin’s long-term uptrend remains intact, with its price currently testing the 12-month moving average, a significant level of support that will determine where the price heads from here.

BTC / USD chart vs 1-month 12-month moving average. Source: Digital Delphi

Bitcoin’s trading volume in the spot and derivatives markets is declining and the prospects of a stronger dollar weigh heavily on global financial markets. This has made indecision the main emotion ruling the crypto market right now and that sentiment is likely to linger until a major price move or motivating event elicits engagement from traders being upgraded. the gap.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move comes with risk, you should do your own research before making a decision.

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