Bitcoin (BTC) is currently stuck in a consolidation phase, causing uncertainty and fears among investors about the potential for further price declines. The latest Bitfinex Alpha report highlights several factors that contribute to this consolidation phase, including diminishing momentum and positive funding rates on futures contracts.
Diminishing Momentum and Positive Funding Rates
The report reveals that BTC is hovering around the $37,000 price range and shows signs of diminishing momentum. This decline in momentum, combined with positive funding rates on futures contracts, is historically associated with market declines. Investors are concerned that this could be an indication of a downward trend in BTC’s price.
Another factor contributing to the consolidation phase is the potential for selling pressure from short-term holders realizing profits. BTC recently recorded its first negative weekly close after four consecutive weeks of positive price movements. Although BTC made a brief attempt to surge past the $38,000 mark, trading activities in the futures and spot markets thwarted its rise.
The Cumulative Volume Delta (CVD) metric for the futures market was negative during BTC’s price rise, indicating heavy profit-taking by market participants. This was further supported by an 8.7% decrease in open interest, suggesting that traders were locking in profits. In the spot market, there was a notable presence of “wall of limit sell orders,” which contributed to BTC’s inability to sustain its upward movement.
While the consolidation phase may seem like a temporary cooling-off period following BTC’s recent bullish trend, investors are advised to tread cautiously. Bitfinex warns that the current market conditions require careful consideration and monitoring to navigate potential risks and opportunities effectively.
Altcoins Outperforming BTC
Interestingly, major altcoins are outperforming BTC during this consolidation phase. This is attributed to a concentration of supply among various investor cohorts. On-chain analysis reveals a significant tightening in BTC’s supply as the fourth halving event, expected in April 2024, approaches.
Bitfinex notes that the current cycle shows a lower proportion of short-term holdings compared to past cycles, indicating a concentration of supply in the hands of long-term holders. This is supported by data on available supply, which measures the amount of BTC circulating and accessible for trading, and supply storage, which represents the amount held by long-term investors.
The data shows that long-term holders are accumulating BTC at a rate greater than the pace at which new BTC is produced. The supply storage rate exceeds new BTC issuance by over 200%, signaling unprecedented levels in history. This suggests that long-term holders have strong confidence in BTC’s future value and are actively accumulating more coins.
As BTC remains in a consolidation phase, concerns about a potential price decline persist. Investors are advised to exercise caution and monitor market conditions closely. While altcoins have outperformed BTC in recent times, the concentration of supply in the hands of long-term holders indicates a positive sentiment towards the leading digital asset’s future. As BTC’s supply continues to tighten, it will be interesting to see how these factors shape its price movements in the months ahead.