The Three Reasons Bitcoin's Rise Could Slow Down

Bitcoin has risen 70% in the past four weeks, surpassing the quotation of $ 50.000 for the first time in three months. While the rise appears to have revived the broader uptrend, further gains towards record highs may be slow to come, blockchain metrics and chart factors indicate.

Withdrawal of foreign exchange inflows

The number of bitcoins held in exchange wallets is on the rise, departing from the recent trend of outflows and a signal of renewed intention by investors to sell.

Data tracked by Glassnode shows that cryptocurrency exchanges received 16.606,80 BTC (-2,01%) on Monday, the highest daily net inflow in over a month. Over the past week, more than 29.000 BTC has been moved to exchanges.

Investors typically move coins from their wallets to exchanges when they intend to sell. Assuming demand-side pressures remain unchanged, the rise in the balance of exchanges could hold back the price rally, albeit only temporarily.

The foreign exchange balance fell by more than 100.000 BTC in the three weeks leading up to August 19, reflecting a largely bullish market sentiment. Bitcoin bottomed near $ 30.000 and rallied to $ 45.000 during that time.

Accumulation stops

Whales, or large investors with the ability to make or break market trends, who have accumulated coins since the mid-May price plunge, have begun to run out of inventory.

The offering held by entities with a balance of 1.000 BTC to 10.000 BTC has fallen by almost 75.000 BTC in the past three weeks, diverging from the price increase.

Entities refer to clusters of addresses owned by a single network participant. These big investors started hoarding coins after bitcoin slipped to $ 30.000 in mid-May. Bitcoin held support in the following weeks and rebounded this month.

The recent price action also reflects the weakening on the buying side. “Failure to close the day above $ 50.000 shows some weakness in demand,” QCP Capital noted on its Telegram channel. 

Bitcoin hit a high of $ 50.496 on Monday, but ended the day below $ 50. At press time, the cryptocurrency was trading close to $ 49.400.

Graphic barriers

Technical studies indicate that the cryptocurrency may consolidate before climbing the critical resistance at $ 51.110, which is the 61,8% Fibonacci retracement of the mid-April to July sell-off.

The 14-day Relative Strength Index (RSI) is now sidelined and does not show a clear directional bias. “A consolidation triangle in the RSI also reflects market hesitation despite positive price action,” said QCP Capital.

DeMARK indicators signal a short-term bullish exhaustion, according to Fairlead Strategies' weekly research note released Monday. The weekly stochastic indicator also signals overbought conditions.

"Bitcoin is entering resistance at a 61,8% Fibonacci retracement level near $ 51.000, which would be a natural place for a short-term pause in the rally," said Katie Stockton, founder and managing partner of Fairlead. Strategies, in the weekly research note.

Stockton, however, added that long-term momentum has strengthened, with the 200-day moving average (MA) rising again. Therefore, the cryptocurrency should eventually break out of the overhead resistance at $ 51.110.