Bitcoin continues its recovery from the China mining debacle, but price action remains delicate in a low-volume market.
Bitcoin (BTC) emerges into a new week with middling price action and optimistic fundamentals — what could the coming days have in store?
Still holding $30,000 support, there’s little about Bitcoin to truly excite traders, but volatility has already reminded them of its presence over the past week.
As a recovery in mining continues, everyone is playing a game of “wait and see” when it comes to the 2021 Bitcoin bull market.
Cointelegraph takes a look at five things that might give BTC price action some direction in the short term.
Dollar sees strength as stocks calm advance
It’s a classic summer picture in equities — a slight comedown last week followed all but constant gains, with caution coming from COVID-19, inflation and other triggers.
This time of year, however, is renowned for its lack of action, and even recent changes amount to little on a wider scale.
“The Covid backdrop is just one of several factors that may be adversely impacting the reflation trade,” Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, wrote in a note quoted by Bloomberg.
The United States dollar gained some strength from the modest shake-up in stocks, with the U.S. dollar currency index (DXY) climbing toward 93.
As Cointelegraph reported, DXY’s inverse correlation to Bitcoin remains in the spotlight for some — a short-term peak for the index may correspond to price pressure for BTC/USD.
Another focus is oil on the back of a lessening of tensions among OPEC+ members and a fresh agreement to boost output. While traditionally less impactful on Bitcoin behavior, any unexpected volatility can provide fuel for a low-volume cryptocurrency market.
This was witnessed last week, as reports of Bank of America greenlighting Bitcoin futures trading for select clients swiftly sent BTC/USD $1,000 higher.
Actions by another bank, namely the U.S. Federal Reserve, may be more important this week. A working group on stablecoins will get the attention of Treasury Secretary Janet Yellen when it is convened with the goal of “intra-agency work.”
Weekly candle raises risk of $29,000 drop
On spot markets, Monday began with hope for the future rather than confidence in current price events.
The weekend saw seesawing from BTC/USD, still unable to beat resistance at $32,000 or higher but likewise apt to avoid tests of $31,000 support.
At the time of writing, $31,750 formed a focus on lower timeframes, with ranging firmly the defining feature of the hourly chart.
“It’s time for a green week for Bitcoin,” popular trader Michaël van de Poppe ventured.
Talk of if and when a Bitcoin price bottom could occur remains a major talking point. As Cointelegraph noted on Sunday, the drawdown from the most recent all-time high of $64,500 has now lasted for three months — the second-longest ever within a bull cycle.
With popular opinion favoring a return below $30,000, van de Poppe argued that a bottom may not be as dramatic as expectations demand.
“A bottom usually doesn’t look great, as the majority of the people are expecting further downwards movements of the markets,” he told Twitter followers.
“A bad weekly candle doesn’t have to mean prices are going to fall further.”
That candle did indeed disappoint, with Sunday’s weekly close on BTC/USD being its lowest of 2021 so far.
For trader and analyst Rekt Capital, an ability to reclaim $32,000 is a problem in itself, opening up the path to levels around $29,000.
“Bitcoin is threatening to lose its Weekly support (~$32000). Today is the last day for $BTC to reclaim this support,” he warned Sunday alongside an accompanying chart.
“Lose it and there is little higher timeframe support to stop BTC from another revisit of the green area.”
Difficulty beats expectations
In contrast to price, Bitcoin’s network fundamentals continue their march back to strength after the unprecedented events of May and June.
The network hash rate, still holding up above its local low of 83 exahashes per second, has not seen any further major setbacks as miners relocate away from China.
The real signs of progress, however, come from difficulty.
This weekend’s automated readjustment saw difficulty dip by a modest 4.8% — a pleasing contrast from prior estimates. Two weeks beforehand, difficulty was forecast to decrease more than ever — by almost 29% — which slowly improved through the two-week difficulty cycle.
Now, Bitcoin is on track to have its first positive readjustment since before the May price crash.
The changes speak to Bitcoin’s unflinching ability to monitor itself and incentivize miners back to the network while continuing to process transactions unhindered.
As such, commentators believe that the worst of the recent upheaval is firmly in the past.
“The hangover of a difficulty adjustment downwards from the China crackdowns should conclude after this adjustment,” Kevin Zhang, vice president of Digital Currency Group mining advisory subsidiary Foundry Services, said at the weekend.
“Expecting to see the hashrate and difficulty to slowly recover from here.”
Meanwhile, both the hash rate and difficulty have dipped below their levels at the May 2020 block subsidy halving.
Funding rates stay cool
On-chain indicators are anything but bearish, but it’s the sustained nuanced signals that are on the radar this week.
Specifically, funding rates across exchanges have remained neutral or lightly negative throughout the recent price volatility — a hopeful insight into traders’ mindset.
As Cointelegraph reported, large whales appear alone in being apt to sell at current levels, with other investor profiles conversely buying up the supply.
In terms of volume, however, a $30,000 Bitcoin is predictably uninteresting. Both futures and PayPal volumes have decreased significantly, the former returning to levels from late last year.
Infamous Bitfinex shorts “unwind”
The weekend’s price action was accompanied by fluctuating bets among large-volume investors.
Short positions on Bitfinex, a driver of short-term volatility as witnessed throughout the past weeks, ebbed and flowed.
What I’m watching:
Shorts unwinding since July 15th.
— Dr. Jeff Ross (@VailshireCap) July 18, 2021
On Monday, shorts were decreasing further as the market waited for cues over general direction.
Bitcoin Market Price Chart in RealTime