After the Biden administration and Republican lawmakers reached a preliminary agreement on the US debt ceiling issue, Bitcoin briefly regained the lost ground of $28,000 for the first time since the beginning of this month. However, according to Blocking Terminal data, as of the time of writing, Bitcoin has fallen back below $28,000, and the Ethereum transaction price is hovering around $1,910.75.
From a liquidity and macro perspective, Bitcoin may be poised to post its first monthly negative return since November last year due to a lack of positive catalysts.
Whale supply index stagnates
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According to data from the on-chain analysis company Santiment, the “supply distribution” index shows that BTC whales have become more cautious in the past few weeks. The supply distribution measures the total amount of Bitcoin currently held by each wallet group in the market.
Santiment defines the holdings of whale wallets as 10-10,000 BTC. The following chart shows the trend of supply distribution for this group of addresses over the past few months:
As can be seen from the above chart, the total holdings of these addresses began to decline after a surge in March. When these investors sell off, the price mostly consolidates, which means that it is the selling of these groups that may slow down the rise. Then, in mid-April, as BTC touched a local top near $31,000, the supply of whales instead touched a local bottom. As the price began to decline, these investors subsequently began to accumulate. This pattern suggests that these holders are starting to buy back at lows again.
According to the data, since the increase in holdings began after the local high point in April, a total of about 93,000 BTC (calculated at the current price of $2.6 billion) has been added to the wallets of these addresses.
However, the supply of these addresses has stagnated in recent weeks, and this new sideways trend may indicate that major investors are now more cautious about buying more because they are unsure where BTC will go next.
Liquidity is hovering at a low level
As the debt ceiling negotiations last week put pressure on crypto investors, the latest Fed meeting minutes also showed that central bank officials have different opinions on the direction of interest rate hikes. The correlation between Bitcoin and gold has fallen from this year’s historical high, and it is beginning to behave more like a risk asset.
Yuya Hasegawa, a crypto market analyst at Bitbank, said that Bitcoin is currently testing its resistance level from March, which is approximately $28,800.
The crypto market has been lacking liquidity stimuli recently. Matteo Greco, a research analyst at investment company Fineqia International, stated in his report, “In the medium term, funds will be withdrawn from riskier assets and invested in government bonds. The result may be a further slowdown in trading volume and liquidity in the stock and digital asset markets, potentially having a negative impact on prices.”
James Check, Chief On-chain Analyst at Glassnode, stated that after experiencing an unusually low level of volatility for a long time, the next major price movement for Bitcoin may be imminent, and it may push BTC up to $32,000. Check explained in an interview with Cointelegraph that this price level is where Bitcoin’s “true cost basis” is located.
To calculate Bitcoin’s average cost basis (the average price at which BTC was purchased), Check and his team removed tokens that were permanently lost or dormant from their calculations and focused on active Bitcoin investors. He said, “This is where the mean reversion level is located, so honestly, I wouldn’t be surprised if it bounces back to that level.”
Despite this bullish scenario, Check also pointed out that a large number of investors may be tired of the bear market and waiting to sell until Bitcoin reaches that level, putting pressure on the price: “This is where you start encountering more resistance.”
The correlation with the US dollar index
Bitcoin’s price movement is closely related to macroeconomic conditions. In recent weeks, Bitcoin has been suppressed below $30,000 due to unfavorable factors such as a strong US dollar index (DXY), a rebound in interest rates, and the possibility of further interest rate hikes by the Federal Reserve.
Yann Allemann, co-founder of Glassnode, analyzed the possibility of a Bitcoin rebound under changes in DXY and interest rates in his tweet.
Allemann believes that the US dollar index (DXY), which measures the value of the US dollar against a basket of six major currencies, has always been a key factor affecting the price of Bitcoin. The strength of the DXY is inversely proportional to that of Bitcoin, meaning that Bitcoin generally weakens when the US dollar index strengthens, and vice versa. The expected turning point of the DXY at the 106-107 level may indicate a bullish outlook for Bitcoin.
Additionally, the change in macroeconomic conditions may boost Bitcoin’s momentum. Congress is set to vote on the legislation as early as Wednesday, and whether the debt limit agreement will be passed on Wednesday remains to be seen.
According to Blockstream data, as of now, Bitcoin’s trading price is $27,782. Without significant positive news to stimulate it, Bitcoin and Ethereum may face their worst month since November last year.