Key Points
- A significant drop in Net Fed Liquidity is expected in the second half of September, potentially impacting Bitcoin’s market.
- Bitcoin’s price recovery is predicted for October, despite the liquidity drop.
Bitcoin [BTC] is likely to experience notable market changes, primarily due to the expected Net Fed Liquidity drop in the latter half of September.
Analyst Tomas predicts a liquidity drain of approximately $300 billion to $550 billion, which could influence risk assets like Bitcoin, gold, and the S&P 500.
Historical Trends and Future Predictions
The correlation between Net Fed Liquidity and Bitcoin has been strong for the past four years, but it’s subject to change. In the past, these liquidity drops have negatively impacted Bitcoin, driving its price down. However, a partial reversal is anticipated on 1 October, indicating a potential recovery.
From September 2022 to August 2024, Bitcoin’s average daily performance was positive at +0.26%. But during significant Fed Liquidity drops, this performance fell to -0.13%, highlighting the impact of reduced liquidity on BTC’s price.
Bitcoin has shown resilience during certain liquidity drops, usually following the medium-term trends of Net Fed Liquidity. For example, since 2020, BTC/USD has either remained stable or declined during liquidity downtrends, gaining strength only during uptrends.
Price Charts and Supply Divergence
Bitcoin’s price recently surpassed the 4-hour 200 exponential moving average (EMA). At the time of writing, the cryptocurrency was trading at $60k after rebounding from the $52k support level.
The flip of the 200EMA suggests that Bitcoin may be heading for higher prices in the short and mid-term, particularly as the market shows signs of momentum and strength.
If Bitcoin can sustain this level, the bounce will carry on into October, even as the liquidity reversal looms.
The supply dynamics for Bitcoin also revealed a key divergence. Currently, Bitcoin’s circulating supply is around 19.8M, with illiquid supply accounting for 14.6M BTC or 73%.
Illiquid supply refers to Bitcoin held by entities that seldom trade or move it, making it unavailable for market transactions. This increasing illiquid supply reduces overall liquidity in the market.
Active Addresses Momentum
Despite Bitcoin’s transaction count being at an all-time high, active addresses have significantly declined. This divergence is contrary to previous bullish periods during which both transactions and active users typically increased together.
Despite the rising price and strong market momentum, fewer users are now actively participating in Bitcoin transactions. According to Glassnode, this divergence indicates a change in market behavior, which could influence Bitcoin’s price in the upcoming months.
In conclusion, Bitcoin’s price appears ready for a potential upward move. However, liquidity trends and supply dynamics will continue to be crucial factors.
