In their latest analysis, Ark Invest crypto experts Julian Falcioni, David Boyle, and Dan White note that presentation A review of Bitcoin market behavior and prospects, identifying the interplay between various economic, technical, and political factors that could shape the future of this leading digital currency.
Bitcoin proves bullish scenario
Since early June, Bitcoin has seen a significant decline, falling by more than -25%. More significantly, on July 7, Bitcoin fell below its 200-day moving average — a key technical threshold. According to Ark, a drop below its 200-day moving average was “a crucial bearish signal that often precedes further declines unless there is a strong rebound.” Ultimately, Bitcoin has shown significant strength in the past few days and Ark was right that Bitcoin made a quick recovery above its 200-day exponential moving average, negating the possibility of a downside.
The surprising element of Bitcoin’s June volatility was the German government’s aggressive sale of around 50,000 bitcoins. The assets were seized from the illegal streaming site Movie2K and gradually moved to various exchanges for sale, starting on June 19. “The influx of large amounts of bitcoin during a traditionally low liquidity period, around the Fourth of July holiday, put significant downward pressure on the price,” the report notes. Notably, this selling pressure has now disappeared.
Related reading
Despite these challenges, Bitcoin has managed to post a stunning rally of over 17% in the past few days. According to Ark, several indicators support this reversal. The contrast between the Bitcoin price decline and the smaller decline in US ETF holdings – 17.3% – suggests that Bitcoin was oversold. “This oversold is likely driven by external shocks rather than fundamental market movements, suggesting a mispricing that could be corrected in the medium term,” the experts explain.
Short-term holders, typically a more speculative segment, have suffered losses, as indicated by the sell-side risk ratio. This ratio, calculated by dividing the sum of short-term holders’ gains and losses realized on the chain by their cost bases, has shown more losses than gains, which typically precedes a short-term market correction.
Related reading
June also saw significant activity from Bitcoin miners. “Miner outflows, which are often a precursor to market adjustments, mirror patterns observed around previous Bitcoin halving events, when the reward for mining a block is cut in half,” says Ark. Such events historically lead to a decrease in supply and a potential price increase as market dynamics adjust to the new supply level.
On the macroeconomic front, the report notes that US economic data has consistently fallen short of expectations, with the Bloomberg US Economic Surprises Index recording its largest negative deviation in a decade. However, the Federal Reserve has maintained a surprisingly hawkish tone, which could weigh on investor sentiment and financial market stability.
American companies are not immune to these challenges. Profit margins, which peaked in 2021, are now trending downward as companies lose their power to set prices, Arch notes. This pressure on profits is leading to price cuts across the board, further weakening the economic outlook.
In equity markets, we have seen a marked increase in market capitalization concentration, reaching levels not seen since the Great Depression. “This concentration in larger entities with large cash reserves may be an early sign of a shift in the economic landscape, which has historically favored smaller-cap stocks,” the report says.
At the time of publishing this report, BTC was trading at $63,131.
Featured image created using DALL E, chart from TradingView.com