Bitcoin (BTC) is facing a challenging start to the week as traders are still feeling the effects of a 10% price crash. The market is struggling to recover from the volatility seen at the end of the previous week, and traders are wary of what’s to come in the next few days. With the focus on the $26,000 level, there are various theories about where Bitcoin might go next. Multiple factors are expected to have an influence, including macro data releases in the United States and commentary from the Federal Reserve at the Jackson Hole Economic Symposium.
Short-term Bitcoin holders are currently experiencing increasing unrealized losses, with on-chain transactions in loss reaching multi-year highs. Sentiment in the market is low, but the question is whether this fear is justified. In this article, we explore these topics and more as crypto markets gear up for what promises to be an interesting week.
Last week, many anticipated increased volatility around the weekly close on August 20th. However, Bitcoin’s price action turned out to be a non-event, with the upside capped at $26,300. The market subsequently experienced a downward movement to the $26,000 level. Traders and analysts remained cautious about the future outlook, citing various triggers for potential downside. Additionally, there was a major wipeout of open interest during last week’s drop, leading to short positioning across exchanges. Funding rates continue to be negative, exacerbating the cautious sentiment in the market.
Bitcoin’s order book liquidity on Binance has been described as a “ghost town.” This lack of liquidity could potentially lead to increased volatility in the market. However, historical analysis suggests that previous declines in open interest have often led to increased prices in Bitcoin. While the fear is still prevalent, there may be room for upside potential.
Some traders and analysts believe that Bitcoin could enter a phase of rangebound trading. The quiet weekend has given rise to the idea that Bitcoin may trade within a certain range in the coming week. Traders are watching for a possible false move to the downside followed by a relief bounce. Consolidation periods are not uncommon in Bitcoin’s history, and if history repeats itself, a period of consolidation could be on the horizon.
This week, there will be key data releases in the United States, including jobless claims, home sales, and other economic indicators. However, all eyes are on the Federal Reserve’s annual Jackson Hole Economic Symposium, where Federal Reserve Chair Jerome Powell will deliver a speech. Jackson Hole has historically been a venue for market volatility, and given the current climate, this year’s event is expected to be no different. Traders are eager to hear Powell’s commentary on the economy, and his speech could have a significant impact on the markets.
Bitcoin’s recent price drop has resulted in a shake-up in on-chain profitability metrics. The adjusted Spent Output Profit Ratio (aSOPR) is now below 1, indicating that transactions are being sold at a loss rather than a profit. Additionally, there has been a three-year high in the number of unspent transaction outputs (UXTOs) in loss. Speculators are feeling the pressure, as Bitcoin is currently trading below the cost basis for short-term holders. This downturn in on-chain profitability metrics suggests that Bitcoin’s recent drop has resulted in significant losses for many investors.
The sentiment in the market is currently skewed towards fear, according to the Crypto Fear & Greed Index. The average crypto investor is more scared now than at any time since the SVB collapse in March. However, some traders and analysts believe that this fear may be overblown. They argue that Bitcoin has experienced similar sell-offs in the past and has always recovered. Historical analysis shows that Bitcoin has had multiple pullbacks of 20% or more in 2023 alone, and each time, the market has eventually recovered.
In conclusion, Bitcoin is starting the week with the aftermath of a significant price crash. Traders and analysts remain cautious about the future outlook, with various triggers potentially leading to further downside. However, there is also the potential for upside, given historical precedents. The upcoming Jackson Hole Economic Symposium and key data releases in the United States are expected to add further volatility to the market. Overall, the sentiment is currently dominated by fear, but it remains to be seen whether this fear is justified or if Bitcoin will once again recover from its recent drop.