Bitcoin (BTC) recently experienced a sharp decline, plunges towards $40,000 amid a broader selloff in the cryptocurrency market. While the most prominent token managed to pare some losses and is currently trading 4% lower at $42,000, concerns remain about the possibility of further downward movement in the price before a possible recovery.
Investors are wary of inflows from short BTC positions
According to a recent study by CoinShares report, digital asset investment products recorded inflows totaling $43 million for the 11th consecutive week. In particular, there has been a significant increase in short position inflows due to the recent price increase and perceived downside risks.
Europe led the way with $43 million tributaries, followed by the US with $14 million (half of which was in short positions). On the other hand, Hong Kong and Brazil recorded outflows of $8 million and $4.6 million, respectively.
Bitcoin remained the main focus of investors, attracting $20 million in inflows, bringing year-to-date inflows to $1.7 billion. Short Bitcoin positions recorded $8.6 million in inflows, suggesting that some investors view current price increases as unsustainable.
ether (ETH) also saw increased interest. In the sixth week, inflows totaled $10 million, marking a reversal from previous outflows.
Selling pressure is increasing as miners reduce their Bitcoin holdings
After According to Satoshi Club, there are signs that miners are selling their Bitcoin holdings following the recent price drop. The data shows a significant decline in miners' BTC holdings amid increasing inflows to exchanges, indicating selling pressure in the market.
Satoshi Club analysis shows that this trend could be due to the expected halving in 2024, which will reduce miners’ rewards by half.
BTC miner inventories are declining. Source: Satoshi Club on X.
In addition, Bitcoin's net unrealized profit/loss, which indicates the profit rate of investors, is taken into account exceeded 0.5 for the first time since December 2021. This suggests that a significant portion of Bitcoin investments are currently profitable, potentially leading to increased selling pressure at the current price highs.
BTC’s bullish structure is intact, but a deep correction is looming
In the 1-day chart for Bitcoin, the current trading price is closely aligned with a support level. Although Bitcoin briefly fell below this level, it did so was able to recover and trading above it, mitigating further declines.
However, if selling pressure persists and current price levels fail to sustain, Bitcoin's next critical support level would be at $39,990.
The 1-day chart shows BTC’s correction in the last 24 hours. Source: BTCUSDT on TradingView.com
It is worth noting that during the previous hype surrounding Bitcoin's milestone, many traders entered long positions below current levels. This influx of long positions could trigger a liquidation hunt before a recovery occurs.
Should such a scenario occur, the hunt for liquidations could drive Bitcoin price further lower and potentially test the support levels at $38,700 and $37,800.
On the positive side, Bitcoin is current bullish structure would remain intact unless there is a significant correction that would push the price below the $29,900 level. This level began Bitcoin’s current bull market at the end of October.
The future outcome depends on whether Bitcoin can successfully hold its nearest support levels and enable a recovery that shifts the focus from looking for long positions to looking for short sellers and ultimately reclaiming previously captured territory.
Featured image from Shutterstock, chart from TradingView.com
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