Potential Reasons for Bitcoin's Decline Following Record Highs
Bitcoin (BTC) is experiencing a downward trend for the second consecutive day, trading around $87,600 on Wednesday after reaching a record high of $89,940 just a day prior. This recent price action follows a significant 30% surge since November 5, raising concerns among investors about a potential corrective pullback.
Technical indicators are suggesting that the current rally may be overstretched, indicating a possible decline in the near future. The Miner Position Index (MPI), which tracks the movement of Bitcoin from miners' wallets, has also reached a yearly high, further supporting the notion of a pullback. This spike in MPI suggests that miners are taking profits, which increases selling pressure on the market.
The MPI measures the amount of Bitcoin flowing out of miners’ wallets compared to the annual average. A high MPI indicates that miners are withdrawing more Bitcoin than usual, and when it spikes to extreme levels, it often signals that Bitcoin's price may be nearing a peak or preparing for a dip. On Tuesday, the MPI hit 3.56, marking its highest level this year. Historical data shows that similar spikes have preceded price drops; for instance, when the MPI reached 3.87 on November 10, 2023, Bitcoin saw a decline of over 6% within four days.
Despite the selling pressure from miners, the launch of spot Bitcoin Exchange Traded Funds (ETFs) in January has attracted significant interest from institutional investors. These investors have been actively purchasing BTC ETFs, which could provide some support against price declines. On Tuesday, as Bitcoin's price fell, US spot Bitcoin ETFs recorded an inflow of $801.70 million, largely driven by BlackRock’s IBIT fund, which contributed $762.50 million, according to Coinglass ETF data.
QCP Capital's report highlights a notable shift in investment patterns, stating, "Since the election, gold has declined by 5% while Bitcoin has surged by 30%, indicating a growing perception of Bitcoin as 'digital gold.'" The report suggests that if even 1% of capital from gold were to flow into Bitcoin, it could potentially drive the price up to around $97,000, emphasizing the upside potential as this narrative gains traction.
As Bitcoin trades just below the critical $90,000 level, the end-November basis has surged to over 18%, with strong interest in far-out calls at $110,000 and $120,000 strikes. This trend indicates heightened demand for margin and leverage as investors position themselves for potential breakout opportunities.
Currently, the Relative Strength Index (RSI) stands at 80 on the daily chart, significantly above the overbought level of 70 and trending downwards. This suggests bullish exhaustion and an increasing risk of a correction. Traders are advised to exercise caution when adding to their long positions, as a move out of the overbought territory by the RSI could signal a clear pullback.
If the decline continues, Bitcoin's price may find initial support at $78,807, which corresponds to the 141.40% Fibonacci extension level drawn from July’s high of $70,079 to August’s low of $49,000. On the other hand, if bullish momentum persists, the rally could extend to retest the 241.40% Fibonacci extension at $99,887.