Bitcoin (BTC) has experienced a notable trend downward, which has landed it back down to $112,000. The crypto market is also showing unique divergence regarding the buying behavior of investors. Retail investors, often referred to as “tourists” in the market, are cashing out and putting downward pressure on the price, while larger investors, referred to as “whales,” are taking advantage of the same price movement by buying large quantities of Bitcoin. An interesting tug-of-war is taking place that is determining the immediate price action of the cryptocurrency and what it may do in the future.
Momentum Cools as Trading Slows
The recent decline has seen Bitcoin’s price drop by over 9% from its peak of $124,128 on August 14. This correction has come with a substantial decrease in market activity. The daily spot trading volume has declined by almost 24%, to $31.58 billion, indicating that momentum has waned more recently, as has been the case in the derivatives market due to a decline in futures volume. Remarkably, open interest actually increased slightly, indicating many traders remain in their positions and are not taking profits. However, this is ultimately a sign of indecision in the market.
The Tale of Two Investors: Retail vs. Whales
The divergent actions of different investor groups are at the heart of the current market movement. According to on-chain analytics firm CryptoQuant, retail demand has fallen by over 5% in the past week. This group of smaller buyers is much more instinctual, reacting to market volatility by dumping their assets at the first sign of declining prices. This is traditional behavior for less experienced investors, taking profits or cutting losses even when it was clearly not necessary.
On the contrary, Bitcoin whales are actively taking advantage of the dip in the market. Wallet activity shows that large holders have added over 16,000 BTC on exchanges in last 7 days. This kind of accumulation is usually indicative of institutional players and high-net-worth individuals acquiring assets. This short-term price effect is a precursor to a price increase for these reasons – their trust in the price to move higher is strong enough to continue to consume so much of the supply that retail is liquidating.
Early Signs of a Market Reset
Market analysis indicates that Bitcoin may be in the early stages of a “market reset.” Meanwhile, short-term holders who purchased in the range of $113,000-$120,000 show slight losses. Short-term holders have been having a tough couple of months as indicated by the Spent Output Profit Ratio (SOPR). SOPR is an indicator used to show if investors (long- or short-term) are selling at profits or losses. For these investors, the SOPR has fluctuated between 0.96 and 1.01…Historically, local market bottoms have been established at a SOPR of around 0.9, which is a capitulation, or panic selling moment. The readings shown would imply that we are not there yet, but we are waiting for a reset where the weaker hands can be shaken out.
Technical Indicators Point to Volatility
From a technical looking glass, we are at the verge of change in the market. Bitcoin on the lower band of its Bollinger Bands, which typically marks the point when an asset is oversold. However, the lower band, with the volatility amongst the market could define the volatility in the up direction. The Relative Strength Index (RSI), which is a momentum oscillator, is at a neutral but declining 42, while other technical indicators have similar bearish divergence, like the MACD histogram has just recently showed price crossover of bearish consensus. Even if the change is somewhat positive in the short term, the trend is still negative in the short-term.
What Lies Ahead?
Bitcoin will enter a critical phase over the next few days; if the $112,000 support level holds and whales continue to accumulate below this level, a rough bounce towards $118,000 could occur. However, if support fails, we could see a drop towards the next substantial support zone at $105,000 to $108,000. The opposing actions of retail sellers and whale buyers will remain the main thing to watch, as this battle will dictate the future path of Bitcoin over the coming weeks.
