Bitcoin Bearishness Continues: Will it drop below $50,000?

 On 6 September following the announcement of the United States non-farm payrolls statistics the bitcoin price dropped from $56,805 to $53,304. Data on CoinGecko shows that the value of the number one crypto had rebounded to $54, 814 on 7 September.  At the time of writing bitcoin has further gained as it is trading at $55,349 BTC/USDT on Gate.io. Its value has increased by 1.5% within the last 24 hours.

As hinted above, bitcoin dipped below $54,000 on the 6^th following the U.S. Bureau of Labor Statistics’ non-farm payrolls report. According to the report employment increased by 142,000 against the anticipated 160,000. On the other hand, the unemployment rate remained at 4.2% while there was a wage growth of 3.8% year-over-year and 0.7% month-over-month.  Also, the labour participation rate was constant at 62.7% while the employment-population ratio remained unchanged at 60%.

Due to the unfavourable non-farm payrolls report the crypto market responded in an expected manner. However, the impact was not as severe as anticipated. The bitcoin price soared to $56,000 before falling to $53,304. Surprisingly, it rebounded within a short period.

Also, following the report the United States dollar weakened a bit as the dollar index (DXY) fell to 100. That fall in value of the U.S dollar contributed to the short-term bitcoin rally on 6 September. Right now, analysts forecast a 57% possibility of the Federal Reserve to implement a 25 basis points rate cut. Overall, the report indicates that the U.S. labor market has been gradually improving which supports the thesis of cutting interest rates. There may be other rate cuts during the remainder of the fourth quarter depending on statistics from other areas such as inflation.

Bitcoin’s price fall below $54,000 on the 6^th of September led to mass liquidations. Nearly bitcoin positions worth around $50,000 were liquidated. Such a loss shows the danger of using high leverage when trading cryptocurrency. Despite its recent price fall and the associated decrease in its market capitalization, bitcoin remains the top ranked cryptocurrency by market capitalization. In all, it has lost value by 13.4% within the last two weeks.

Bitcoin Market Analysis in View of the Non-farm Payrolls Report 

Bitcoin has been in a bearish trend since 25 August when it reached a high of $65,000. However, on a high time frame bitcoin is within a bullish channel that started forming in March 2023. There is a high possibility that it may break above that channel in the next few months. The fact that last week bitcoin fell below $54,000 shows that it has the potential to slide further in coming days if the bearish trend continues. The asset price may drop below the $52,000 key resistance level. However, if the selling pressure continues it is likely to target $48,000.

There are several indications that support a continued bearish outlook. As an example, during last week the Net Realized Profit/Loss (NRPL) was negative, indicating that the bearish trend may continue. A negative NRPL is an indication that there is low confidence about recovery in the market.

Similarly the bitcoin MVRV (Market Value to Realized Value) has been ranging between 1.72 and 1.85 during the past three months. However, it rose above 2.0 during the last week of August. After the recent dip it dropped to 1.78% as the following graph indicates.

Its current MVRV position has created another buying opportunity. As expected, there has been an increase in whale buying activity. For example, data on Lookonchain shows that in September alone three bitcoin whales acquired 2,814 BTC, valued at around $157.3 million.

This rise in whale buying activity could be the reason for bitcoin’s recent recovery.

Factors Contributing to Bitcoin’s Drop Below $55,000 

Some factors contributed to bitcoin’s recent price drop. Apart from the unfavourable U.S non-farm payrolls statistics the decrease in its active addresses affected its price. A report by 10x Research, a digital asset investment firm, shows that bitcoin addresses peaked in November 2023 but declined after the first quarter of 2024. For example, in November 2023 there were around 1.2 million active addresses. By March the figure was still around 1 million. Nevertheless, that number has fallen to 612,000. This shows that almost half of the addresses that were active in November 2023 no longer interact with bitcoin. The following graph shows the decrease in active addresses over the months.

The decrease in the number of bitcoin active addresses may also indicate weakening interest in bitcoin among some cohorts. As a result of this trend, 10X Research has predicted that the bitcoin price may drop to $45,000.

Also, data from Glassnode supports that the bitcoin price may continue to fall until it reaches a certain level. This is because the Mayer Multiple reading is below 1 suggesting that the bitcoin bearish momentum is likely to continue. When the reading is above 1 it is a bullish signal.

Based on the above indications the bitcoin price may fall further within the next few weeks. Notably, the weekly chart for the first week of September indicates that the existing price level was similar to the one observed in November 2021. During that period the bitcoin price dropped below $50,000. From there, it plunged further towards $36,000. However, the current situation may be different due to the existing macro-economic environment. The presence of spot bitcoin ETFs may change the bitcoin price dynamics as well. However, what is still definite is that bitcoin is still within a bearish trend.