Bitcoin Price Plummet Mirrors US Economic Concerns, Recovery Predicted
Summary:
The Bitcoin (BTC) price dropped 5.6% to $64,300, the lowest level in over a month, on June 18, a downward trend reflecting concerns over the US economy including employment and retail sales. Despite the high-interest rates maintained by the US Federal Reserve, resilience in derivatives markets suggests a potential recovery in BTC price. Investors' interest in Bitcoin was also negatively affected by the S&P 500 index's high point. Although Bitcoin's failure to sustain the $68,000 support level contributed to a significant outflow from US spot Bitcoin exchange-traded funds (ETFs), the long-to-short ratio indicates a sustained demand for leveraged long positions. Bitcoin derivatives traders maintaining an optimistic stance during the price dip and reduced selling pressure from miners suggest no further BTC price drop is expected.
On June 18, the value of Bitcoin (BTC) slumped by 5.6% over a single day, landing at $64,300 - a low point not seen in over a month. This downward spiral, lasting six days, seemed to mirror worrying signals coming from the American economy, including in the realms of employment and retail sales. At the same time, interest rates, maintained by the U.S Federal Reserve, persist at a two-decade high. However, a stable trend observed in the derivatives market signals hope for a rescue of the BTC price in the future.
Risks of a potential U.S recession and high-interest rates cast a shadow over BTC's value. A slight rise of 0.1% in U.S retail sales during the previous month fails to meet economist predictions of a 0.3% increase, according to data by Yahoo Finance. Chief North America economist at Capital Economics, Paul Ashworth, regards this as evidence of an uninspiring second-quarter gross domestic product. Yet, Deutsche Bank's chief U.S. economist, Matthew Luzzetti, expresses optimism about the resurgence of economic activity to a more typical rate.
John Williams, President of the Federal Reserve Bank of New York, has faith in the strength of the U.S economy and labor market and anticipates inflation to lessen in the upcoming half of the year. However, he argues that the Fed's current policy exerts pressure on the economy. Still, he insists on more data before contemplating a reduction in interest rate. High-interest rate periods tend to favor fixed-income investments, thus creating an adverse environment for Bitcoin. Moreover, the S&P 500 index touched its highest ever on June 18, propelled by a select few tech companies, which deflated the enthusiasm for Bitcoin amongst investors. More worryingly, outflows of $562 million were reported over a span of three days from U.S. spot Bitcoin exchange-traded funds (ETFs), as per information by Farside Investors.
Examining the balance in the top traders' long-to-short ratio can provide an insight into market sentiment. By amalgamating positions across perpetual and quarterly futures contracts, it becomes easier to guage whether professional traders lean towards a bullish or bearish stance. Despite Bitcoin's struggle to maintain the $68,000 support level, the long-to-short ratio for Binance's top traders swelled from 1.32 on June 13 to 1.52, signaling a strong demand for leveraged long positions. Meanwhile, on OKX, the indicator jumped from 1.65 on June 13 to 1.78, suggesting additions of net longs as Bitcoin's price dipped below $67,000 courtesy of whales and market makers.
To comprehend if traders were surprised and currently hold short positions underwater, one can study the equilibrium between call (buy) and put (sell) options. A rise in demand for put options indicates that traders are inclined towards neutral-to-bearish price strategies. However, information from Bitcoin options at Deribit shows a decline in the demand for put options since June 14, increasing the favorability for call instruments twofold, implying that Bitcoin whales and market makers did not foresee the drop in price and maintained an upbeat outlook during the drop.
Selling over $203 million worth of BTC each week, Bitcoin miners churn out an average of 3,150 BTC weekly. Therefore, closely watching their outflow is crucial for making sense of trader sentiment. According to Glassnode's Miners Outflows Multiple, there has been less selling pressure since June 14 as the multiple stayed below 0.8, contrary to the May 30 - June 13 period when miners sold more than the year's average.
Taking into consideration the optimistic stance held by Bitcoin derivatives traders during the recent drop to $64,300 on June 18 and strong outflows from the spot ETF, there is no reason to believe that there will be further downward pressure on BTC prices. Especially given the likelihood of the Fed reducing rates by the end of the year, keeping in mind the current macroeconomic scenario.
The above text is for general understanding purposes and does not offer investment or legal advice. The author alone represents the views, opinions, and thoughts expressed here, which may not correspond with the views and opinions of Cointelegraph.
Published At
6/18/2024 8:36:45 PM
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