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Bitcoin extends losses, risking further declines if it closes below $56,000

|ByManish Chhetri

  • Bitcoin price approaches a crucial support level at $56,000; a close below could see its downtrend persist.
  • Lookonchain and Arkham intelligence data show that institutions are selling their BTC holdings.
  • On-chain data shows a bearish picture, such as falling daily active addresses and decreasing Coinbase premium index.

Bitcoin (BTC) recovered on Wednesday after retesting its daily support level of around $56,000, but the 2.15% decline on Thursday suggests this rebound may be fleeting. The downtrend may persist if BTC drops below the $56,000 support, evidenced by Lookonchain and Arkham intelligence data indicating institutional selling, alongside bearish on-chain signals such as decreasing daily active addresses and a declining Coinbase premium index.

 

Daily digest market movers: Bitcoin shows weakness as intuitions sell off their BTC holdings

  • Lookonchain data shows that institutions might be selling their BTC holdings. Ceffu, an institutional custody, asset management and off-exchange settlement solutions company, deposited 2,000 BTC from Monday to Wednesday and, in total, 3,063 BTC worth $182 million into the Binance exchange since August 26. This transfer to the crypto exchange could signal that Ceffu is ready to sell these holdings.

Furthermore, Arkham intelligence data shows that eight Bitcoin spot EFTs sold $287 million BTC on Wednesday. This sell-off from institutional investors would increase the selling pressure and weight on Bitcoin’s price.

  • US Senator Cynthia Lummis had introduced her proposal, the Bitcoin Act. The bill aims for the US to purchase 1 million BTC over five years, signaling institutional interest and potential government backing for Bitcoin and further enhancing its legitimacy and appeal.

“My BITCOIN Act is currently the only viable solution that positions us to cut our national debt in half by 2045,” Senator Cynthia said in an interview with Bankless on Wednesday.

  • According to Coinglass, Bitcoin’s long-to-short ratio is 0.95, at its lowest since August 28, meaning more traders anticipate the asset’s price to fall.

Bitcoin long-to-short ratio chart

  • Santiment’s Daily Active Addresses index helps track network activity over time. A rise in the metric signals greater blockchain usage, while declining addresses point to lower demand for the network.

In BTC’s case, Daily Active Addresses fell from 836,960 on August 30 to 707,960 on Thursday, constantly decreasing since mid-March. This indicates that demand for BTC’s blockchain usage is decreasing, which could propel a decline in Bitcoin price.

Bitcoin Daily Active Addresses chart

  • CryptoQuant’s Bitcoin Coinbase Premium Index shows the gap between Coinbase Pro price (USD pair) and Binance price (USDT pair). Coinbase Premium data is one of the indicators that shows a sign of whale accumulation, as the Coinbase Pro platform is considered the gateway for institutional investors to purchase cryptocurrencies.

In the case of Bitcoin, the index has been declining since August 23 and fell from 0.0130 to 0.0001 from Monday to Wednesday, trading below its 14-day Simple Moving Average (SMA) at 0.0143. This indicates that whales are continuously selling at a lower premium. In addition, it shows a decrease in the interest and activeness of investors in Coinbase.

Bitcoin Coinbase Premium Index chart

BTC Technical analysis: BTC recovery could be short-lived

Bitcoin was rejected after retesting its 50% price retracement level at $59,560 (drawn from a high in late July to a low in early August) and dropped 2.78% on Tuesday. It bounced off on Wednesday after retesting the daily support level at $56,022, finally closing the day in the green near $58,000. However, this bounce could be short-lived, as it continues to decline by 2.15% at the time of writing to $56,725 on Thursday.

 

If BTC continues to decline and closes below the $56,022 daily support level, it could decline further by 3.5% to retest the psychological level of $54,000.

The Relative Strength Index (RSI) and the Awesome Oscillator (AO) momentum indicators on the daily chart trade below their respective neutral levels of 50 and zero, respectively. Both indicators suggest weak momentum and a continuation of its downward trend.

BTC/USDT daily chart

However, if Bitcoin’s price breaks above the $59,560 resistance and closes above $62,019, the 61.8% Fibonacci retracement level, the bearish thesis will be invalidated. In this scenario, BTC could extend the positive move by 5.5% to revisit its daily resistance level at $65,379.

Cryptocurrency prices FAQs

Token launches like Arbitrum’s ARB airdrop and Optimism OP influence demand and adoption among market participants. Listings on crypto exchanges deepen the liquidity for an asset and add new participants to an asset’s network. This is typically bullish for a digital asset.

A hack is an event in which an attacker captures a large volume of the asset from a DeFi bridge or hot wallet of an exchange or any other crypto platform via exploits, bugs or other methods. The exploiter then transfers these tokens out of the exchange platforms to ultimately sell or swap the assets for other cryptocurrencies or stablecoins. Such events often involve an en masse panic triggering a sell-off in the affected assets.

Macroeconomic events like the US Federal Reserve’s decision on interest rates influence risk assets like Bitcoin, mainly through the direct impact they have on the US Dollar. An increase in interest rate typically negatively influences Bitcoin and altcoin prices, and vice versa. If the US Dollar index declines, risk assets and associated leverage for trading gets cheaper, in turn driving crypto prices higher.

Halvings are typically considered bullish events as they slash the block reward in half for miners, constricting the supply of the asset. At consistent demand if the supply reduces, the asset’s price climbs. This has been observed in Bitcoin and Litecoin.

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