Despite Bitcoin’s price volatility and a new five-month low, several key indicators suggest that the bulls may still have the upper hand, hinting at a possible recovery in BTC price trends.
Bullish divergence strengthens BTC rebound prospects
Bitcoin started the month tumultuously, plunging over 10.50% by July 7th, hovering around $57,000. BTC’s lowest point reached $53,550, with the decline primarily due to market sell-off concerns.
The latest drop in Bitcoin’s price has been accompanied by an expanding divergence between the price decline and the Relative Strength Index (RSI) rising. This divergence typically indicates that selling pressure is weakening, despite the continued price drop.
From a technical analysis perspective, this situation usually means that the current downward trend may reverse or slow down, suggesting that Bitcoin could soon 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 5th, characterized by a smaller body at the top of the daily candle chart and a longer lower shadow with a smaller upper shadow. A similar situation also occurred in May.
Secondly, Bitcoin’s daily RSI readings hover near the oversold threshold of 30, which typically signals a consolidation or recovery period. Predictions indicate that this indicator may signal a rebound, with BTC potentially returning to the “previous highs” above $70,000.
Bitcoin ETF investors return after July’s decline
Another bullish indicator for the BTC market is the resumption of capital inflows into U.S. spot Bitcoin Exchange-Traded Funds (ETFs) after two consecutive days of outflows.
Data from Farside Investors shows that on July 5th, when the U.S. announced weak unemployment data, these funds attracted a total of $143.1 million in BTC, indicating that Wall Street investors’ risk sentiment is rising.
Wise Origin Bitcoin Fund (FBTC) led with $117 million in capital inflows. Bitwise Bitcoin ETF (BITB) saw a net inflow of $30.2 million, while ARK 21Shares Bitcoin ETF (ARKB) and VanEck Bitcoin Trust Fund (HODL) recorded inflows of $11.3 million and $12.8 million, respectively. In contrast, Grayscale Bitcoin Trust Fund (GBTC) experienced a net outflow of $28.6 million.
U.S. money supply expands again
More upward clues for Bitcoin come from the recent increase in the U.S. M2 money supply, an indicator measuring the money supply, including cash, checking deposits, and quasi-money that is easily convertible, such as savings deposits, money market securities, and other time deposits.
As of May 2024, the M2 money supply grew by approximately 0.82% year-over-year, with the overall decline narrowing from a peak drop of 4.74% in October 2023 to around 3.50%.
The growth in M2 supply is favorable for Bitcoin, as it increases economic liquidity. The more currency in circulation, the more people will invest in riskier assets like Bitcoin, as traditional investments like savings and bonds offer lower returns.
Bitcoin miners’ capitulation suggests Bitcoin price bottoming
The Bitcoin miners’ capitulation indicator is nearing levels seen at the market bottom after the FTX collapse at the end of 2022, suggesting that BTC may have bottomed out. Miners’ capitulation refers to miners reducing operations or selling some of the mined Bitcoin and reserves to maintain operations, earn revenue, or hedge against Bitcoin risks. During this period, Bitcoin’s price fell from $68,791 to $53,550. A notable sign is the significant drop in Bitcoin’s hash rate, the total computing power protecting the Bitcoin network.
The hash rate has decreased by 7.7%, dropping to a four-month low of 576 EH/s after reaching a historical high on April 27th. This decline indicates that some miners are scaling back operations, reflecting the financial pressure on the mining community after the halving.
As weaker miners exit the market or scale back operations, stronger miners will gain greater profits, potentially stabilizing their operations and reducing the need to sell BTC. These indicators suggest that the Bitcoin market may be nearing the bottom, similar to previous cycles, where miner sell-offs and operational reductions precede market recovery.