Bitcoin Weakens as Crypto Market Faces 5-Month Downtrend

August 27, 2024 10:28 PM PDT | By Team Kalkine Media

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Bitcoin Weakens as Crypto Market Faces 5-Month Downtrend — Image source: shutterstock

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Bitcoin’s recent rally to $65,000 has dissipated, despite the US Federal Reserve’s indication of an interest rate cut in 2024. Over the weekend from August 24 to August 25, Bitcoin surged to $65,000, marking an extension of its recovery from the August 5 low of $49,500. This rally raises questions about whether Bitcoin will continue trading within its current range, consolidate, or potentially break to new highs.

Several key data points provide insights into Bitcoin’s price movements:

DXY Declines to a Year-to-Date Low

The US Dollar Index (DXY) often serves as a barometer for {Bitcoin} (BTC) price trends. Typically, a weakening DXY correlates with a rise in Bitcoin’s value. Last week, DXY fell to its lowest point of the year, below 101, which coincided with Bitcoin's ascent from the $53,000 range. Real Vision chief crypto Jamie Coutts noted this dynamic, highlighting the inverse relationship between DXYand Bitcoin.

Federal Reserve’s Rate Cut Confirmation

On August 23, US Federal Reserve Chair Jerome Powell signaled that interest rate cuts are imminent, although the specifics were not detailed. This announcement was anticipated by many in the cryptocurrency sector, who believed that rate cuts would eventually lead to a policy of quantitative easing, potentially benefiting Bitcoin. Following Powell’s statement, Bitcoin experienced a notable increase of over 6%, and 2-year bond yields dropped to their lowest level since March 2023. Wall Street also exhibited optimism for stocks, aligned with the Fed’s rate cut indication.

Muted Demand and Equilibrium

Despite Bitcoin’s surge to $65,000, recent data suggest a return to a state of equilibrium. Glassnode’s MVRV deviation bands metric indicates that Bitcoin’s value is aligning with its historical mean. Additionally, CryptoQuant observed a significant slowdown in demand since April, when Bitcoin previously traded above $70,000. There has been a noticeable decrease in Bitcoin liquidation volumes compared to the peak activity in March. This reduction, coupled with the current risk and leverage appetite among traders, suggests a period of subdued market enthusiasm.

Overall, while Bitcoin achieved a significant price rebound, current indicators reflect a stabilization phase with less aggressive market behavior and cautious sentiment among market participants.

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