Is Bitcoin Bottoming Out? 3 Vital BTC Market Signals Answer

Yashu Gola
Published: Jul 11, 2024, 10:12 GMT+00:00

Key Points:

  • Large investors are increasing their Bitcoin holdings at the fastest rate since April 2023, indicating strong demand and confidence in a potential market recovery.
  • Traders' unrealized profit margins are at -17%, the lowest since November 2022, suggesting Bitcoin may be near a market bottom as selling pressure decreases.
  • USDC's supply is growing, but USDT's remains flat due to regulatory issues. Overall, the stablecoin ecosystem's growth supports increased liquidity for Bitcoin.
Is Bitcoin bottoming out

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Bitcoin’s (BTC) price has retreated by over 25% three months after refreshing its record high at around $74,000. The cryptocurrency’s decline in July, in particular, is the hardest, driven by fears of the ongoing Mt. Gox reimbursement to clients and Germany’s government selling off over $580 million worth of BTC.

However, recent data from CryptoQuant’s latest weekly report highlights several key indicators that suggest BTC might be on the verge of bottoming out after hitting a four-month low of $53,550.

Bitcoin Whale Accumulation is on the Rise

One of the most promising signs that Bitcoin might be nearing a bottom is the ongoing accumulation by large investors, commonly known as “whales.”

According to the report, whales are increasing their BTC holdings at a monthly growth rate of 6.3%, the fastest pace observed since April 2023. This uptick in whale activity indicates strong demand and confidence in Bitcoin’s long-term prospects despite recent price declines.

Bitcoin Total Whale Holdings
Bitcoin Total Whale Holdings and Monthly Percent Change. Source: Santiment

Historically, whale accumulation has often preceded significant price rebounds. The current trend suggests that these major market players are taking advantage of lower prices to strengthen their positions, potentially setting the stage for a market recovery.

Interestingly, the bullish on-chain data comes after the CoinShares’ weekly report showing institutional investors deposited $398 million into Bitcoin-based investment funds in the same week that saw BTC’s price declining 12.65%, indicating a growing “buy-the-dip” sentiment.

Negative Trader Margins Indicate Potential Bitcoin Market Bottom

Another critical indicator comes from Bitcoin investors’ trading behavior. The report notes that traders are currently experiencing highly negative unrealized profit margins, standing at -17%.

Bitcoin realized price and profit loss margin
Bitcoin on-chain trader realized price and profit/loss margin. Source: CryptoQuant

This level of negative margins is the most extreme since the aftermath of the FTX exchange collapse in November 2022.

Extreme negative trader margins have historically correlated with market bottoms, as seen in previous cycles. When traders operate at significant losses, it often signals capitulation, a point at which selling pressure may subside, allowing for a price rebound. The current state of trader margins suggests that the Bitcoin market might be close to such a turning point.

Similarly, Bitcoin’s decline to $53,550 caused new large investors to incur losses nearing $1 billion in July alone. This shift, where significant investors are now realizing losses, could be an early indicator that Bitcoin’s price is bottoming out.

Bitcoin realized profits by whales
Bitcoin realized profits by whales. Source: CryptoQuant

Earlier in the year, during February and March, this same group of investors had seen substantial profits when Bitcoin’s price soared above $70,000.

3. Stablecoin Liquidity and Market Sentiment

Stablecoin liquidity is a crucial factor in Bitcoin’s market dynamics. The greater the supply of U.S. dollar-linked cryptocurrencies on exchanges, the greater the potential for a crypto market boom.

Interestingly, USD Coin (USDC), the second-largest stablecoin by market cap, has witnessed a 5.6% increase in supply on a 30-day average timeframe.

USDC supply 30-day change
USDC supply 30-day percentage change. Source: CryptoQuant

Meanwhile, the supply of the leading stablecoin, Tether (USDT), is stagnant, which somewhat offsets the bullish scenario raised by USDC’s growing supply.

USDT Market Cap Change and Bitcoin Price
USDT market cap change and Bitcoin price. Source: CryptoQuant

Fundamentally. USDT’s stagnant growth could be due to a growing regulatory crackdown. For instance, in June, crypto exchange Bitstamp delisted euro-linked Tether stablecoins in compliance with the European Union’s new laws for crypto, dubbed MiCA.

Meanwhile, the recent lawsuit against Northern Data, majority-owned by Tether, alleging securities fraud and market manipulation highlights the potential regulatory and legal risks associated with Tether’s ownership of companies. This lawsuit could potentially impact investor confidence and raise concerns about the broader implications for Tether’s ecosystem.

Overall, the stablecoin ecosystem growth means more fiat-linked cryptocurrencies available to be deployed across Bitcoin and other crypto market assets.

About the Author

Yashu Gola is a journalist focusing on cryptocurrency markets since 2014. He writes for Cointelegraph and CoinChapter and has previously served as the chief editor for NewsBTC.