Bitcoin [BTC] has been unable to break above the $65,000 local supply zone, even as spot Bitcoin ETF inflows have turned positive since July 14. The injection of capital from institutional products has not been sufficient to trigger a meaningful price rally, highlighting a persistent weakness in underlying spot demand. According to data from CryptoQuant, the 30-day Bitcoin spot demand metric has deteriorated further, dropping to -170k BTC after a brief recovery to -80k BTC in early July. This decline indicates that new buyers are stepping back, while existing holders are reducing their exposure.
The stabilization of Bitcoin prices around $65,000, despite falling demand, can be attributed to short-covering activity in the derivatives market. When traders who had bet on price declines are forced to buy back positions, it creates upward pressure that temporarily offsets selling pressure. Additionally, the easing of sell pressure from short-term holders has contributed to the sideways price action. However, these factors have not been enough to confirm a bullish reversal. Technical analysis suggests that a breakout above the $67,300 local swing high is necessary for a shift in short-term momentum, yet the market has consistently failed to reclaim that level.
ETF Inflows Fail to Ignite Sustained Buying
The positive turnaround in spot Bitcoin ETF flows was initially seen as a bullish signal. After weeks of net outflows, the inflows that began in mid-July brought renewed optimism among institutional investors. However, the overall capital injection has been modest relative to the broader market cap of Bitcoin. For example, the cumulative net inflows over the past two weeks amount to roughly $1.2 billion, which is less than 0.5% of Bitcoin's $1.3 trillion market capitalization. This modest influx has not been sufficient to absorb the persistent selling from long-term holders and miners, who have been distributing coins into the market.
Moreover, the ETF flows have been inconsistent. Days of strong inflows are often followed by days of flat or negative flows, indicating that institutional demand is not yet sustained. The lack of a consistent upward trend in ETF inflows suggests that traditional investors remain cautious, awaiting clearer macroeconomic signals or a more favorable regulatory environment. The U.S. Federal Reserve's interest rate decisions, ongoing inflation concerns, and geopolitical uncertainties have all contributed to a cautious stance among large capital allocators.
New Capital Activity at Yearly Lows
One of the most telling metrics is the Bitcoin New Investors indicator, which tracks the share of capitalization held in coins younger than one month (i.e., coins that have not moved in 30 days or less). According to crypto analyst Axel Adler Jr., this metric currently sits at 8.1, only modestly above its lower boundary of 7. Historically, readings below 10 have coincided with periods of market stagnation or bearish phases, such as the mid-2022 drawdown. The metric's upper boundary of 50 has been reached during euphoric price rallies like in late 2020. The current level, near the lower end, implies that new capital flowing into Bitcoin is minimal, and existing holders are not aggressively accumulating.
This lack of fresh capital is a stark contrast to previous bullish phases. During the 2021 bull run, the New Investors metric consistently stayed above 20, signaling strong participation from new market entrants. The current figure indicates that retail and institutional newcomers are hesitant, possibly due to the prolonged consolidation phase or the memory of recent corrections. Without a significant influx of new buyers, Bitcoin's price is unlikely to sustain a breakout above resistance levels.
Short-Term Holder Sentiment Remains Bearish
Further evidence of market weakness comes from the short-term holder spent output profit ratio (STH SOPR). This metric measures the average profitability of coins moved by addresses that have held Bitcoin for less than 155 days. When the 7-day moving average of STH SOPR is above 1.0, short-term holders are selling at a profit on average, signaling bullish sentiment. Conversely, a value below 1.0 indicates that these holders are realizing losses, which is a bearish signal.
Currently, the 7-day moving average of STH SOPR stands at 0.99, just below the critical 1.0 threshold. This means that the typical short-term holder is selling at a slight loss, reflecting a lack of confidence in the near-term price trajectory. While a reading of 0.99 is not extremely bearish, the fact that it has not recovered above 1.0 despite the ETF inflows suggests that market sentiment has not shifted. For a sustainable recovery, we would need to see the STH SOPR rise above 1.0 and hold there, indicating that short-term participants are once again profitable and willing to hold or add to positions.
Historical data shows that previous bottoms and trend reversals have been accompanied by a decisive move in STH SOPR above 1.0. For instance, in January 2023, when Bitcoin bottomed around $16,000, the STH SOPR recovered from deeply negative levels and crossed above 1.0, heralding the subsequent rally to $30,000. The failure to replicate this pattern in the current environment suggests that the market is still in a bearish or consolidating phase.
The Role of Macroeconomic Factors
Beyond on-chain metrics, macroeconomic conditions continue to influence Bitcoin's price action. The U.S. dollar index (DXY) has remained relatively strong, putting pressure on risk assets including cryptocurrencies. The Federal Reserve has maintained a hawkish stance, keeping interest rates at elevated levels to combat inflation. Higher rates make yield-bearing assets like bonds more attractive compared to non-yielding assets like Bitcoin, reducing the incentive for institutional investors to allocate capital to cryptocurrencies.
Furthermore, the upcoming U.S. presidential election in November 2024 adds an element of uncertainty. Both candidates have differing views on cryptocurrency regulation, and market participants are waiting for clarity before making large bets. The potential for stricter regulation under a new administration could deter new capital from entering the market. Until these macro headwinds subside, Bitcoin's spot demand is likely to remain subdued.
Another macroeconomic factor is the performance of the Chinese economy. Weak economic data from China has dampened global risk appetite, as investors worry about a slowdown in the world's second-largest economy. Bitcoin, often correlated with other risk assets like equities, has been dragged lower by these concerns. Moreover, the ongoing conflict in Ukraine and tensions in the Middle East contribute to a risk-off sentiment globally, further suppressing demand for speculative assets.
Comparative Analysis with Previous Cycles
To understand the current situation, it is useful to compare it with previous Bitcoin cycles. In 2019, after the bear market of 2018, Bitcoin experienced a similar period of low demand and consolidation around $6,000-$7,000. The 30-day demand metric hovered near zero or slightly negative for several months before a catalyst in the form of easing monetary policy from global central banks triggered a rally to $14,000. The current scenario echoes that period, with spot demand negative but prices stabilizing due to short-covering and reduced selling from long-term holders.
However, there are notable differences. The current cycle includes spot ETFs, which were not available in 2019. While ETFs provide easier access for institutional investors, they have also introduced new dynamics, such as the ability to short Bitcoin through ETF shares. Additionally, the presence of a large derivatives market means that price movements are more heavily influenced by leverage and liquidations. The interplay between spot and derivative markets has made it harder for a simple ETF inflow to drive prices higher, as futures shorts can offset buying pressure.
Another key difference is the maturity of the Bitcoin network. The number of active addresses has remained relatively flat compared to previous cycles, suggesting that user adoption has plateaued. While the network continues to process transactions, the growth rate of new users has slowed. This natural saturation could be contributing to the difficulty in attracting new capital.
Mining and Supply Dynamics
On the supply side, the Bitcoin network completed its halving event in April 2024, reducing the block reward from 6.25 BTC to 3.125 BTC. Historically, halvings have led to price increases due to reduced supply issuance. However, the impact of the 2024 halving has been muted so far. Miners have had to adjust to lower revenues, leading some to sell more of their Bitcoin holdings to cover operational costs. The hash rate has also declined slightly as less efficient miners drop off the network.
The selling pressure from miners adds to the negative spot demand. Despite the reduced issuance, the overall supply available on exchanges has remained relatively stable, indicating that demand is not absorbing the miner sell pressure. This oversupply situation keeps a lid on prices, as any minor rally is met with selling from miners seeking liquidity.
Additionally, long-term holders, who typically hold Bitcoin for more than 155 days, have shown mixed behavior. While the overall trend in long-term holder supply has been increasing, there have been periods of distribution during local price highs. The current price level around $65,000 appears to be a zone where some long-term holders are taking profits, adding to the sell pressure. This distribution, combined with weak demand, creates a challenging environment for upward price movement.
Market Psychology and Sentiment
The sentiment in the Bitcoin market has shifted from greed to fear over the past few months. The Crypto Fear & Greed Index, which ranges from 0 (extreme fear) to 100 (extreme greed), has fluctuated but has been stuck in the neutral-to-fear zone since June. This indicates that market participants are unsure about the direction and are reluctant to commit new capital. The lack of strong sentiment also explains the persistent short-term holder losses.
Whale activity, as tracked by large transactions, has also decreased. Whales are generally considered smart money, and their lower activity suggests they are not confident enough to make large moves. Without whale accumulation, retail investors lack a strong signal to enter the market.
In summary, Bitcoin's spot demand weakness persists despite positive ETF inflows. New capital remains hesitant, as evidenced by the low New Investors metric and the STH SOPR below 1.0. Short-covering and reduced sell pressure from short-term holders have temporarily stabilized prices near $65,000, but these factors are not enough to trigger a sustained bullish reversal. Macroeconomic headwinds, miner selling, and cautious sentiment continue to weigh on the market. Until demand recovers significantly and new capital enters the ecosystem, Bitcoin is likely to remain in a consolidative or bearish phase, with key resistance at $67,300 needing to be broken for any meaningful uptrend to develop.
Source:AMBCrypto News