This week, bitcoin experienced the worst one-week decline since May. Price appeared on track to hold above $12,000 after it broke that level earlier in the week. However, despite the bullish sentiment, warning signs had been flashing for weeks.
For example, per the Weekly Jab Newsletter, “a quantitative risk indicator known for spotting price reversals reached overbought levels on August 21st, suggesting caution despite the bullish trend.”
Additionally, heightened derivative futures open interest has often been a warning signal for price. Prior to the dump, BitMex’s bitcoin futures open interest was nearly 800 million, the same level which initiated a drop two weeks prior.
The warning signals were ultimately validated when an influx of selling pressure entered the market early this week. An analyst at CryptoQuant stated “Miners were moving unusually large amounts of $BTC since yesterday…taking bitcoin out of their mining wallets and sending to exchanges.”
The decline has brought about a multitude of bearish forecasts, with a particular focus on $BTC below $10,000 to close the CME gap around $9,750.
Commodity Strategist at Bloomberg, Mike McGlone, states that “like Gold at $1,900, $10,000 is a good initial retracement support level. Unless the stock market plunges further, $10,000 bitcoin support should hold. If declining equities pull $BTC below $10,000, I expect it to still eventually come out ahead like Gold.”
Despite the potential for further declines, some analysts view the drop as healthy.
Anonymous analyst Rekt Capital, writes “bitcoin confirmed a macro bull market the moment it broke its weekly trend line…that said however, price corrections in bull markets are a natural part of any healthy growth cycle and are a necessity for price to later reach higher levels.”
They further note “bitcoin could retrace as far as $8,500 while maintaining its macro bullish momentum. A revisit of this level would constitute a ‘retest attempt’ whereby a previous level of sell-side pressure turns into a new level of buy-side interest.”
Lastly, “another way to think about this retrace is through the lens of the bitcoin halving. After each halving, price consolidates in a ‘re-accumulation’ range before breaking out of that range towards the upside, but later retraces towards the top of the range for a ‘retest attempt.’ The top of the current halving range is ~$9,700, which coincides with the CME gap.”
While the technical analysis and open interest charts suggest a healthy retrace, the quantitative indicator has yet to “clear,” i.e. falling to bullish levels. Furthermore, the macro environment is far from certain. Thus, if equities continue their decline, $BTC is likely to follow.
The story is still unfolding in real-time, but given the numerous fundamental tailwinds for bitcoin, the bull market will likely survive even if price falls beneath $10,000.
Disclosure: The author owns bitcoin and ethereum, and is editor of Weekly Jab Newsletter.