Historically low spot trading volume and investor indecision put pressure on Bitcoin prices

If one word can be used to describe the views of most participants in the cryptocurrency ecosystem on the near-term prospects of Bitcoin (Bitcoin) This will be “undetermined” because mixed signals from various indicators make many traders wait for a major change in either direction before planning the next entry point.

A new report from Delphi Digital conducted a macro study of Bitcoin’s current price trends and found that multiple factors, including low trading volumes and a strong U.S. dollar, have put heavy pressure on top cryptocurrencies.

BTC/USDT 1-day chart. source: Transaction view

Bitcoin’s recent drop to US$31,000 has added to the atmosphere of fear currently looming over the cryptocurrency market. Analysts are now warning that failure to close above US$31,000 may cause BTC to fall to USD 29,000 to USD 24,000 Area.

Delphi Digital emphasizes that the following three key areas have the greatest impact on Bitcoin’s short-term price movement

Collapse of spot trading volume and open interest

Delphi Digital stated that the reduction in trading activity is one of the biggest factors affecting the market. This is because after the May 19 sell-off, spot and derivatives traders flooded the exchange.

Spot trading volume. source: Delphi Digital

As shown in the graph above, after the sharp increase in the first half of 2021, as prices plummeted and traders vowed to no longer use leverage, trading volume fell by more than 60%.

The sharp drop in the price of BTC has also helped curb the use of high leverage by retail traders in the derivatives market, as evidenced by the fact that open positions in BTC futures have fallen back to levels since the beginning of 2021.

Delphi Digital says:

“This cleansing has caused significant damage to the bullish market structure. The futures basis is close to 0%, and the financing interest rate of perpetual contracts has fallen.”

On the more positive side, the large-scale liquidation event that occurred in May helped eliminate over-leveraged traders, which means that “strong hands are the participants who primarily contributed to the current level of open interest.”

Strong U.S. dollar leads to weak BTC

Another factor depressing the price of Bitcoin is the recent strength of the U.S. dollar, which has been on an upward trend since bottoming at 89.53 on May 25.

DXY 1 day chart. source: Transaction view

As shown in the image above, a large reverse head and shoulders pattern is formed on the DXY chart, and now the neckline is tested for the third time.

If the U.S. dollar rises again, the current economic recovery may be threatened as financial conditions will tighten, which may severely affect many of the most popular transactions in 2021.

Delphi Digital says:

“Commodities, gold, emerging market stocks, and Bitcoin are all vulnerable to a stronger U.S. dollar, but the speed of their movement is still a key factor.”

Bitcoin price falls to long-term support

Although the 51% drop in BTC prices has caused many analysts to worry that another multi-year bear market may begin, it is important to consider some of the larger macro trends that have led to the current situation.

Bitcoin monthly returns. source: Delphi Digital

The above chart shows that Bitcoin has risen for six consecutive months before the economic downturn. From a historical perspective, the asset should be a callback.

Even though BTC is down 51% year-on-year from its historical high, its price is still 250% higher than its valuation of USD 9,100 on July 16, 2020.

Bitcoin’s long-term upward trend remains unchanged, and its price is currently testing the 12-month moving average, which is an important level of support that will determine the direction of the price.

BTC/USD and 12-month moving average 1-month chart. Source: Delphi Digital

The decline in Bitcoin trading volume on spot and derivatives exchanges, and the prospect of a stronger U.S. dollar have severely affected global financial markets. This has led to indecision as the main sentiment currently dominating the cryptocurrency market, and this sentiment may continue until major price changes or incentive events prompt OTC traders to participate.

The views and opinions expressed here only represent the views of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading action involves risk, and you should conduct your own research when making a decision.