Bitcoin Indicators Flashing Caution

Bitcoin Rejected At All-Time High

The Bitcoin price hit an all-time high last week before reversing sharply.

From a technical analysis perspective, BTC formed a topping tail candle on the daily chart.

A topping tail candle is a bearish reversal signal until proven otherwise (BTC would need to close and confirm above the wick peak).

It is often associated with price action peaks and can be seen in previous cycles.

From an on-chain perspective, as Bitcoin reached all-time highs, the key indicators did not follow.

That’s not normal. It suggests that the market cap is inflated compared to actual network activity and the value of the transactions.

Futures Market

Futures volume is also down in July. Volume at current levels will not support a sustained upward move.

Volume is a lagging indicator. It tends to follow the market. It’s rare to get a low-volume move with upside momentum in price. It’s more likely a false signal.

Monitoring volume over the next couple of weeks may help build a better understanding of what price will do next.

If the market continues to rise and volume is not in lockstep, that will not be a positive signal. The weight of probability is for a sharp correction.

Spot Bitcoin Market

The picture painted in the Futures market is echoed in the spot market.

The trade volume is currently at $5 billion.

It’s much higher than the previous cycle, but so is the price.

There was significant volume around the Trump election; however, the trend since has been to the downside.

This is reflected in the Active Address Sentiment Indicator (AASI), which tracks the volume of users on the network and suggests that, in the absence of volume, the recent rally may not be sustained.

Retail is usually more prominent in this phase of the cycle. However, it’s possible that the ETFs are now capturing that element of the cycle.

That would explain why ETF volumes are increasing and are currently higher than spot volume.

In addition, the recent strength in the U.S. Dollar and deceleration in the global M2 money supply expansion may result in muted upside potential for BTC.

Proceed With Caution

The indicators are pointing towards short-term overheated conditions.

That said, that is likely to be temporary.

Cycle capital flows indicate that BTC is far from a cycle peak.

In addition, there is little evidence that new market participants are accumulating BTC at potentially overvalued levels compared to historical averages.

At this point, BTC needs to set a solid level of support at current levels.

The volume in the futures and spot markets needs to reverse.

Retail participation needs to increase, and momentum in ETFs and treasury company accumulation must continue.