Bitcoin (BTC) experienced a significant drop of 5.42% in the past 24 hours, reaching a new low for the past few weeks at $57,151 on May 1st. On-chain data suggests that a decrease in demand growth for Bitcoin, coupled with an increase in open short positions, may be the cause of this recent decline. It is possible that BTC will continue to hit new lows in the future.
According to CryptoQuant, the decline in BTC’s demand can be attributed to a slowdown in demand from permanent holders, a decrease in spot Bitcoin ETF demand, and an increase in short positions in the futures market. Data from CryptoQuant shows that demand from permanent holders, who only buy Bitcoin and never sell, dropped by 50% in April, from over 200,000 BTC in late March to about 90,000 BTC.
The chart provided by CryptoQuant indicates that this metric has reached levels similar to early March when Bitcoin experienced a significant correction, resulting in a 7% drop immediately after reaching its all-time highs. Demand from whales has also been declining since late March, suggesting that slower growth in demand from large investors often drives BTC price corrections.
CryptoQuant analysts also noted a slowdown in Bitcoin demand due to declining purchases from spot ETFs in the U.S., which adds to the selling pressure. The report highlights that the daily purchase of Bitcoin from ETFs has dropped to almost zero, after peaking in mid-March at over $1 billion. The report emphasizes the need for a new wave of Bitcoin purchases from ETFs to stimulate demand growth.
Another metric used by CryptoQuant to explain the slowdown in Bitcoin demand is the decrease in traders’ willingness to pay more to open long positions, as sell orders surpass buy orders. The funding rate for Bitcoin has reached a year-to-date low, indicating that traders are less willing to pay as much as before to open long positions. Instead, traders are increasingly opening short positions, expecting further price declines.
Analysts agree that the direction for Bitcoin price is likely downwards. CryptoQuant analysts have set a lower target within the $55,000 to $57,000 demand zone, which is 10% below the current cost basis of traders at $63,000. This cost basis has historically provided support for prices during bull markets. Popular analyst Scott Melker believes that $52,000 is the short-term bottom for BTC, noting that the correction is still mild for a bull market as the daily RSI is not yet oversold. Bitcoin analyst Tuur Demeester suggests that $50,000 could be the next stop for Bitcoin now that the $60,000 support has been lost. Trader and analyst Mags warns that if Bitcoin closes below $60,000 on the weekly timeframe, a much deeper retracement to $40,000 and even lower could be expected.
It is important to note that this article does not provide investment advice or recommendations. Readers should conduct their own research and assessment of risks before making any investment or trading decisions.