Bitcoin's Rally Loses Momentum as Profit-Taking Increases 1%

Bitcoin's recent rally, which spanned nearly three months, appears to be losing momentum as buying pressure wanes and more traders begin to take profits. The world's largest cryptocurrency has seen a decline of over 1% in the last 24 hours, indicating a transition phase. Despite this slowdown, institutional demand remains robust, with significant inflows into US-based spot Bitcoin ETFs. This institutional support is crucial as it counteracts the profit-taking activity, particularly among short-term holders who bought in below $80,000.

Bitfinex analysts have noted that Bitcoin’s “vertical acceleration” seems to be off the table for now. The spot volume is decreasing, and the taker buy pressure is weakening, suggesting that the market may be nearing a local peak. For six consecutive days, Bitcoin has traded within a narrow range, with daily price changes staying below 3%. This low volatility has sparked speculation about an imminent breakout.

Technical analysis points to a consolidation phase, with Bitcoin currently trading below the $107,500 mark and the 100-hour simple moving average. The next level of resistance is at $107,400, while important support levels are at $106,800, $106,500, and $105,500. If the price breaks above $108,000, it could advance toward $108,800, with the final target of $110,000 in sight if momentum picks up again.

Multiple factors could drive Bitcoin towards a breakout above $110,000. Inflation concerns are resurfacing as import tariffs implemented in April are gradually being passed on to consumers. The US Personal Consumption Expenditures Price Index held below 2.3% from March to May, but it may start to rise as supply chains respond to increasing costs. Additionally, the potential inclusion of MicroStrategy in the S&P 500 index could attract a significant influx of passive capital into Bitcoin.

The Federal Reserve’s decision on interest rates on July 30 is another major macroeconomic event that could impact Bitcoin. The market is currently pricing in a 19% chance of a rate decrease, and any dovish surprise could provide a substantial boost to the cryptocurrency, as lower rates are generally favorable for Bitcoin. Furthermore, Donald Trump’s proposed Senate package, which includes substantial tax cuts, could increase consumer liquidity but may also lead to fiscal imbalances.

Long-term holders have been a key factor in preventing Bitcoin from maintaining prices above $100,000. According to Charles Edwards, the founder of Capriole Investments, long-term holders have been selling their assets since spot Bitcoin ETFs were launched in January 2024. This selling pressure has created a supply overhang, hindering price increases despite institutional demand.

Looking ahead, if Bitcoin experiences continued ETF inflows, reduced selling pressure from long-term holders, and favorable macro conditions such as a potential Fed rate cut, it could break out above $110,000. Near-term price targets include immediate resistance at $107,400-$108,000, a bullish breakout target at $108,800-$110,000, and downside support at $106,500-$105,500. However, historical data suggests that the months of August and September are typically more volatile and prone to corrections before the usual year-end rise.

As Bitcoin continues to oscillate around the $17,000 mark, a closer look into its on-chain metrics suggests a lag that might be causing concern among traders and analysts. Despite Bitcoin’s seemingly robust position, indicators behind the scenes hint at a less optimistic trajectory for the world’s leading cryptocurrency.

Recent data indicates that Bitcoin’s price stability is not fully backed by on-chain activity, which includes transactions, active addresses, and overall blockchain usage. Typically, a healthy uptrend in price is supported by increased on-chain action, signalling strong user engagement and investor confidence. However, the current scenario shows a mismatch as these metrics remain subdued despite the stable prices. This divergence could be pointing to a temporary stability, suggesting that the price may be susceptible to downward pressure if the gap widens.

The lag in on-chain metrics is a critical point of observation for traders and investors. While short-term stability offers a temporary cushion, the long-term health and growth of Bitcoin largely depend on robust and consistent on-chain activity. Experts suggest that the current stagnation in user engagement and blockchain transactions could stem from several factors including geopolitical tensions, macroeconomic shifts, and changes in crypto regulation. These elements are likely slowing down new investments and possibly increasing the cautiousness among existing investors. For those looking to capitalize on Bitcoin, this could be a crucial time to monitor these metrics closely before making large commitments.

Looking ahead, the cryptocurrency landscape remains highly unpredictable. If Bitcoin manages to increase its on-chain activity and align it more closely with its price, we might see more sustainable growth. However, if the current dissonance between price stability and blockchain activity continues, there may be a recalibration needed either through price corrections or a surge in on-chain metrics due to renewed investor interest and broader economic recovery.

In conclusion, while Bitcoin manages to hold a steady line at present, the underlying data suggests caution. Traders and investors would do well to keep a close eye on on-chain metrics as these often provide early signals of larger, more impactful market shifts. As the crypto market continues to evolve, staying informed and adaptive will be key to navigating future trends.