The Bitcoin price has fallen to the lower end of its nearly one-month trading range, between $29,800 and $31,300. Yesterday, BTC fell to a low of $29,704, but recovered to $30,306 within a few hours. At press time, BTC is once again approaching the $30,000 mark, and another drop and liquidity grab seems likely.
While this week has been rather quiet on macro data releases, it’s worth taking a look at what’s happening in the Bitcoin market itself.
Why is Bitcoin falling today?
Swissblock Insights observed that when Bitcoin hit a new yearly high of $31,840 last week, there was an unusual calm in the market. However, momentum soon faded and selling pressure intensified, causing BTC to fall to a low of $30,000. They highlighted the narrow Bollinger Bands, noting: “The Bollinger Bands are very narrow, with a difference of only 4.2% in value between the upper and lower bands. A move is brewing.”
Furthermore, the analyst stressed that a significant catalyst is needed to inject some life into the currently depressed situation:
Volatility is expected despite the fact that we are in no man's land in the short term; liquidity remains low, open interest remains flat and shorts are nowhere to be seen. There is no dictate on the direction we are heading and only significant catalysts can make things interesting in this dull situation we are in.
The analyst said that a break below the $29,650 support level would invalidate the bull setup. On the other hand, a move above $31,500 could reignite the momentum and send the price surging to $33,000. But for that to happen, spot demand needs to reignite strongly and bulls need to enter the market, “otherwise the momentum will continue to wane.”
On-chain data provider Glassnode further shed light on the current state of the Bitcoin market. Despite temporarily setting new yearly highs, they described the market as “extremely quiet” and pointed to the Bollinger Bands. As NewsBTC reported yesterday, the compression in volatility marks a market reminiscent of the calm of early January.
Additionally, Glassnode’s analysis shows a slow but steady flow of funds into Bitcoin. The realized cap is currently at just $396 billion. After hitting a cycle low of $380 billion, the indicator suggests a slow but steady flow of capital into the market in 2023.
Glasnode also highlighted that investors remain reluctant to give up their held supply, leading to market conditions similar to the volatility seen in 2016 and the 2019-20 period. Total realized gains and losses are similar to historical trends:
If we calculate the ratio between realized profits and total losses, [...] we can also note that this week the ratio set a lower high. If this continues, it could hint at similar volatile market conditions in 2019-20 and in the second half of 2021.
The analysis also highlights the profit-locking behavior of Bitcoin holders, with the majority of short-term (88%) and long-term holders (73%) holding balances in profit. However, short-term holders are the main players active in the market.
Of the total 39,600 BTC in daily exchange inflows, 78% of them are associated with the STH cohort. This means that short-term holders may have to temporarily cut profits before selling pressure eases and bulls regain the upper hand.
Options expert GreekLive explained that the Bitcoin market is still losing liquidity, which makes it extremely vulnerable to a spike and a V-shaped recovery:
Cryptocurrencies experienced a V-shaped market today, with BTC falling below $29,700 and ETH falling below $1,875, and then rebounded in a V-shape during the Asian trading session, regaining integer points, but the options market had little reaction to this.
The analysis suggests that sellers focus on static protection and develop a risk control plan to hold options until expiration. For buyers, timely profit taking and hedging options with futures are recommended risk management strategies.
At press time, BTC is trading at $30,064.
