CoinTelegraph reported:
Author: Yashu Gola, CoinTelegraph; Translator: Tao Zhu
Despite the fluctuation and drop in Bitcoin price to a five-month low, several key indicators suggest that the bulls may still have the upper hand, implying a potential recovery in Bitcoin price.
Bullish divergence strengthens BTC rebound prospects
Bitcoin started the month on a turbulent note, with a drop of over 10.50% as of July 7, hovering around $57,000. Bitcoin hit a low of $53,550, mainly due to market concerns over Mt. Gox continuously repaying over 140,000 bitcoins to its customers and the liquidation of bitcoins by the German government causing market sell-offs.
The recent drop in Bitcoin price is accompanied by an increasing gap between the price drop and the rising Relative Strength Index (RSI). This gap usually indicates a weakening selling pressure, 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 a potential rebound in Bitcoin as market sentiment turns bullish.
Bullish hammer and oversold RSI
Two other classic technical indicators support the bullish reversal scenario. First, Bitcoin formed a bullish hammer candlestick pattern on July 5, characterized by a small body at the top, a long lower shadow, and a small upper shadow. A similar situation occurred in May.
Secondly, Bitcoin’s daily RSI reading hovers around the oversold threshold of 30, which usually indicates consolidation or a period of recovery.
Analyst Jacob Canfield predicts that this indicator may signal a rebound, and BTC may return to its “previous high” above $70,000.
Increased bets on rate cut in September by Wall Street
Bitcoin’s ability to recover its bull market further increases due to the rise in interest rates in September.
According to data collected by the Chicago Mercantile Exchange, as of July 7, Wall Street traders believe that there is a 72% probability of a 25 basis point rate cut by the Federal Reserve in September. One month ago, this probability was 46.60%.
The expectation of rate cuts has increased due to the slowdown in hiring in the United States.
When the job market weakens, the Federal Reserve usually considers rate cuts to stimulate economic activity. Lower interest rates are generally beneficial for Bitcoin and other higher-risk assets, as they make traditional safe investments such as U.S. Treasury bonds less attractive.
Bitcoin ETF investors return after July drop
Another positive indicator for the BTC market is the inflow of funds into U.S. spot Bitcoin exchange-traded funds (ETFs) after two consecutive days of outflows.
According to data from Farside Investors, on July 5, when the United States announced weak unemployment data, these funds attracted a total of $143.1 million worth of BTC, indicating an increase in risk appetite among Wall Street investors.
The Fidelity Digital Funds “Origin Bitcoin Fund” (FBTC) led with an inflow of $117 million. Bitwise Bitcoin ETF (BITB) had a net inflow of $30.2 million, while ARK 21Shares Bitcoin ETF (ARKB) and VanEck Bitcoin Trust (HODL) recorded inflows of $11.3 million and $12.8 million, respectively.
In contrast, Grayscale Bitcoin Trust (GBTC) saw a net outflow of $28.6 million.
Expansion of U.S. money supply once again
More bullish clues for Bitcoin come from the recent growth in the U.S. M2 money supply, which is an indicator of measuring the money supply, including cash, checking deposits, and easily convertible near money such as savings deposits, money market securities, and other time deposits.
As of May 2024, the M2 money supply increased by about 0.82% year-on-year, with a total decline of about 4.74% from its peak in October 2023 to around 3.50%.
The growth in M2 money supply is favorable for Bitcoin as it increases economic liquidity. The more currency in circulation, the more people will invest in higher-risk assets like Bitcoin, as the returns on traditional investments such as savings and bonds are lower.
Bitcoin miner capitulation selling suggests bottoming of Bitcoin price
Bitcoin miner capitulation selling indicator is approaching the level seen in late 2022 when the market bottomed after the FTX crash, indicating that BTC may have bottomed.
Miner capitulation occurs when miners reduce operations or sell a portion of the mined and reserved bitcoins to sustain their livelihoods, earn profits, or hedge Bitcoin risks.
Market analysts have highlighted several signs of capitulation over the past month, during which Bitcoin’s price dropped from $68,791 to $53,550. One notable sign was the significant drop in Bitcoin’s hash rate (the total computing power protecting the Bitcoin network).
The hash rate decreased by 7.7% to a four-month low of 576 EH/s after reaching a historical high on April 27. This decline indicates that some miners are scaling back their operations, reflecting financial pressures on the mining community after the halving.
As weaker miners exit the market or reduce operations, more competitive miners will gain larger profits, potentially stabilizing their operations and reducing the demand for selling BTC. These indicators suggest that the Bitcoin market may be nearing its bottom, similar to previous cycles of miner selling and reduced operations before the market recovers.
