When Crypto Summer?

This article is sponsored by FBS.

You have probably heard of the Bitcoin volatility index reaching its ten-year low. A spectacular result for a 14-year asset. Nevertheless, FBS analysts have a lot to say about the current state of the market. Will the downtrend continue? Should investors buy it right now? The article answers these questions. 

The Retrospection  

In the last article by FBS, their analysts shared their view of the probable Bitcoin movement in the mid-term perspective. Here it is:

 Source: TradingView

And after a lot of waiting (seriously, it’s been a while!), we finally got this chart:

Source: TradingView

What’s unique about it? Just as always, critical news triggered the Bitcoin selloff. The initial decrease from $30.7K to $25.5K was likely a result of short-term panic. Some analysts attributed crypto’s drop to a Wall Street Journal report that Elon Musk’s SpaceX sold its bitcoin holdings.

Did the company really sell its crypto holdings? Yes, it did. Does it matter to anyone? We don’t think so. The only thing that may be important here is that SpaceX is Elon Musk’s company, and he is famous for his love for crypto.

However, the pessimism didn’t vanish. On August 29, X (formerly known as Twitter) obtained licenses required for crypto payments and trading in the US. SpaceX adjusting its holdings shouldn’t affect the sentiment or the Bitcoin price. This felt like the market having an over-the-edge reaction to said news.

The downturn didn’t last for long. The rebound started on August 29 and was caused by a more fundamentally important event than X’s crypto license. On Tuesday, the District of Columbia Court of Appeals sided with Grayscale in a lawsuit against the Securities and Exchange Commission, which had denied the company’s application to convert the Grayscale Bitcoin Trust to an ETF. On August 29, BTCUSD gained 6.35%, edging at $28,180, up from $25,960 (the day’s low). 

The Current State of the Market

A spot ETF approval will likely be one of the biggest drivers of the next bull market in crypto because of the cash inflows to the crypto industry that the ETF will provide. For example, gold (XAUUSD) rose 385% over seven years after the first gold-backed ETF was launched in 2004. 

Source: TradingView

For crypto, the same scenario could occur. If so, there’s something else you need to know. Overall bitcoin trading volume has increased since 2018 only because of the derivatives market (futures and options). Spot bitcoin volume actually halved during that period of time. 

Source: CNBC/CryptoQuant. Data as of August 27, 2023

This data shows that there is less liquidity in spot BTC pairs on exchanges. Therefore, it’s easier to achieve higher buying and selling pressure. Imagine that you had 14K BTC that could have been sold without incurring significant price impact. Now, you can only sell 7.4K BTC due to lower liquidity, and selling larger amounts of BTC may incur a considerable amount of slippage. Moreover, bitcoin’s flow into exchanges has been negative thus far, almost every day of the year. The chart below shows that there is currently less Bitcoin on exchanges, which is valid for both the rising and falling of the market.  

Source: CryptoQuant

What Lies Ahead

From FBS analysts’ point of view, they suggest the crypto movements fit perfectly into our vision of the market cycles. Bitcoin is less than a year away from halving, and based on historical occurrences, it falls for one more time before starting a bull run.

The price action of the last six months reminds us of a classical Head and Shoulders pattern, where the right shoulder is yet to happen. The trendline above the price may keep the BTC price from rising too much. The liquidity below $25K may be a sweet zone for stop hunting, and the massive imbalance (fail value gap, FVG) at the $20.8-24.0K range could be our final destination.

The analysts expect Bitcoin to fall in September, a historically weak month for the crypto market. This is what the movement may look like:

Source: TradingView

Overall, the story with the ETF approval will likely become the reason for the next bull run. On the other hand, technically, the local downtrend for BTC doesn’t seem to be over, and we expect another plunge despite positive news.

With FBS, crypto trading is a win-win situation because there are no commissions, tight spreads, and lots of high-quality analytics. Trade smart, and see you in the next market review!

The FBS CFD-trading platform is the brainchild of investors from Western Europe interested in trading research and technical analysis. Founded in 2009, FBS had to provide global markets with transparent and trusted applications for professional and semi-professional CFD traders.

Today, FBS is an international brand present in over 150 countries. The brand unites several independent companies offering their clients opportunities to trade Margin FX and CFDs.

The companies include FBS Markets Inc. (licensed by IFSC), Tradestone Ltd. (licensed by CySEC), Intelligent Financial Markets Pty Ltd. (licensed by ASIC), and TRADE STONE SA (PTY) LTD. (licensed by FSCA).