Bitcoin Price Anchored By Sentiment Damage

Bitcoin Fails At $93k

In our last post, we indicated that while volume-based metrics suggested support for a rebound in bitcoin price, confirming a reversal would require a break above $93k.

BTC closed at $93k on Wednesday; however, it failed to confirm the break on Thursday, which was critical for trend validation.

That was not a surprise, as we also suggested that the balance of probability indicated that any rally would be capped at $93k.

So is bitcoin in a bear market?

Bear markets are not defined by price. Bear markets are a mindset. 

That prompts the following questions: 

Has confidence been shaken?

Are investors looking to exit on rallies?

How much damage has been done to the psyche of traditional finance investors by the recent liquidations and downside corrections?  

Strategy and the spot Bitcoin ETFs account for 10% of bitcoin’s circulating supply. If the perception that bitcoin offers a viable alternative to traditional investments has been damaged, then it could be some time before the BTC price sees meaningful rallies.

On-Chain Data

On-chain data provides some insight into the damage to confidence and sentiment.   

The Spent Profit Output Ratio (SOPR), which tracks actual realised profits or losses, is a useful guide to market capitulation or euphoria.

SOPR, not surprisingly, is in negative territory, indicating that investors are still actively selling bitcoin at a loss.  

The BTC funding rate, which captures investor positioning within the derivatives market, remains negative. That suggests investors are betting on further downside in bitcoin’s price.

That continuation of negative sentiment, particularly after a significant sell-off, likely means sentiment has reached an extreme level of fear and can signal a bottom in prices.

The Short-Term Holder MVRV, which is the ratio between the average accumulation price, the cost price for new market participants, and the underlying price of BTC, is now at levels last seen at the 2022 bear market low. That suggests a chop consolidation period is now likely.

From a technical analysis perspective, bitcoin could be forming a bear flag on the daily chart.

Caution

As noted in our previous post, how the market responded at the $93k level would determine the direction of the bitcoin price action. That was reflected in the outflows observed in the spot Bitcoin ETFs.

The market is close to exhaustion levels and favours short-term mean reversion.

Expect upside momentum in the short-term.

That said, none of the indicators point to the current price being the absolute low, and lower lows from a price action perspective remain in play.

Our view, based on the balance of probability, is that the $80k level remains a key level of support that will likely be tested again.  

In the absence of clear evidence of a genuine bear-cycle low forming, investors should be cautious and remain defensive in their positioning.