Bitcoin extends losses below $57,000 as market mood sours

Bitcoin price approaches a crucial support level at $56,000; a close below it could see its downtrend persist.
US spot Bitcoin ETFs registered an outflow of $287.80 million on Tuesday.
On-chain data paints a bearish picture as Bitcoin’s long-to-short is below one.
Bitcoin’s correlation with the US stock market persists, albeit less pronounced than before.

Bitcoin (BTC) extends its decline by 1.5% on Wednesday, following the rejection from the key resistance level on Tuesday and hurt by a drop in the US stock market. This downtrend may persist if BTC falls below the $56,000 support level, especially as US spot Bitcoin ETFs saw an outflow of almost $290 million. On-chain data also shows a bearish outlook, with the long-to-short ratio falling below one.

Daily digest market movers: Bitcoin price declines as US stock market sinks

Sentiment data highlights the evolving correlation between the US stock market and Bitcoin prices. Bitcoin’s recent dip is relatively minor compared to the US stock market’s sharp decline.

Historically, Bitcoin fell over 7% when the S&P 500 dropped 3% on August 5. Still, with the S&P 500 declining 2.16% on Tuesday, Bitcoin’s correction was limited to 2.78%, suggesting a potential reduction in Bitcoin’s sensitivity to stock market fluctuations.

Bitcoin and S&P 500 comparison chart

According to Coinglass data, US spot Bitcoin ETFs recorded an outflow of $287.80 million on Tuesday, a sign of waning demand. The combined Bitcoin reserves held by the 11 US spot Bitcoin ETFs stand at $43.14 billion, a number that has been constantly declining since late August.

Bitcoin Spot ETF Net Inflow chart

Bitcoin ETF AUM chart

Coinglass’s Bitcoin long-to-short ratio also stands at 0.95, supporting the bearish outlook. This ratio reflects bearish sentiment in the market as a number below one suggests that more traders anticipate the asset’s price to fall.

Bitcoin long-to-short ratio chart

BTC Technical analysis: All eyes on $56,000

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. On Wednesday, it continued its downtrend, declining by 1.5% to $56,622 and retesting the daily support level at $56,022.

If BTC closes below this $56,022, it could decline further by 3.5% to retest the $54,000 psychological level.

The Relative Strength Index (RSI) and the Awesome Oscillator (AO) 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 metrics FAQs

What is circulating supply?

The developer or creator of each cryptocurrency decides on the total number of tokens that can be minted or issued. Only a certain number of these assets can be minted by mining, staking or other mechanisms. This is defined by the algorithm of the underlying blockchain technology. Since its inception, a total of 19,445,656 BTCs have been mined, which is the circulating supply of Bitcoin. On the other hand, circulating supply can also be decreased via actions such as burning tokens, or mistakenly sending assets to addresses of other incompatible blockchains.

What is market capitalization?

Market capitalization is the result of multiplying the circulating supply of a certain asset by the asset’s current market value. For Bitcoin, the market capitalization at the beginning of August 2023 is above $570 billion, which is the result of the more than 19 million BTC in circulation multiplied by the Bitcoin price around $29,600.

What is trading volume?

Trading volume refers to the total number of tokens for a specific asset that has been transacted or exchanged between buyers and sellers within set trading hours, for example, 24 hours. It is used to gauge market sentiment, this metric combines all volumes on centralized exchanges and decentralized exchanges. Increasing trading volume often denotes the demand for a certain asset as more people are buying and selling the cryptocurrency.

What is funding rate?

Funding rates are a concept designed to encourage traders to take positions and ensure perpetual contract prices match spot markets. It defines a mechanism by exchanges to ensure that future prices and index prices periodic payments regularly converge. When the funding rate is positive, the price of the perpetual contract is higher than the mark price. This means traders who are bullish and have opened long positions pay traders who are in short positions. On the other hand, a negative funding rate means perpetual prices are below the mark price, and hence traders with short positions pay traders who have opened long positions.

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