Bitcoin fell 2.6% in the last 24 hours after reaching new all-time highs last week due to expectations of a cut in U.S. interest rates.
On the morning of this Monday (18), Bitcoin was trading at $115,192, after rising to $122,882 just a few days ago.
Analysts said that derivative data shows a wave of profit-taking driving the decline of the leading cryptocurrency over the weekend.
About $550 million in positions were liquidated in cryptocurrencies due to the slight drop in Bitcoin's price, according to CoinGlass.
An increase in put option buying activity observed in the last two weeks and a median return close to zero for Bitcoin in August over the last 12 years highlight the decline of the leading cryptocurrency.
'Traders are taking a cautious approach,' said Julio Moreno, head of research at CryptoQuant, to Decrypt.
Derivative data shows that the approximately 3% drop of the leading cryptocurrency from the weekend high of $118,575 was not a sign of new bearish sentiment, but rather the result of traders closing profitable positions.
The combination of a $350 million drop in open contracts and a decrease in volume delta points directly to profit-taking.
The uncertainty surrounding the current conflict between Russia and Ukraine and the lack of a clear agreement at the recent peace summit are among the main reasons for Bitcoin's recent decline, said Sean Dawson, head of research at the on-chain options platform Derive, to Decrypt.
What comes next?
Dawson expects a 'deceleration' in the inflow to the two main cryptocurrencies following the recent drop. However, he explained that the speech of Fed Chairman Jerome Powell on Friday is 'crucial to determining how the bull market will evolve in the next three months.'
The nomination of President Trump's appointee, Stephen Miran, to the Federal Reserve Board to fill a temporary vacancy following Adriana Kugler's departure has become a focal point for analysts.
'In light of the recent changes on the board, JPMorgan Global Research now forecasts that the Fed's next interest rate cut will occur in September,' the firm stated in a report on August 15.
This outlook is now in line with the market's moderate expectations overall, with CME's FedWatch tool showing an 83.4% probability of a 25 basis point cut in interest rates in September.
A cut in interest rates makes cash maintenance less attractive, leading investors to seek higher returns in riskier assets such as stocks and cryptocurrencies. This increased demand for risky assets drives their prices up.
Corroborating this optimistic outlook is the delta of supply and demand at a depth of 10%, which shows a distorted order book relative to supply, suggesting that investors are buying on dips.
The last time this metric showed a buying trend in a downturn, on August 2, Bitcoin rose nearly 12% in the following 11 days and reached an all-time high of $124,545.
Due to the combination of favorable macroeconomic signals and renewed investor appetite, the overall market outlook remains optimistic.
Powell's position on interest rates, along with the peace agreement between Russia and Ukraine, could restart the rally.
If Powell remains firm on keeping interest rates high for longer, this could, however, trigger another wave of selling, which could lead to a massive liquidation.