Bitcoin short-term holders capitulate as data highlights potential generational buying opportunity

Bitcoin (BTC) price action suggests that the asset remains in a precarious position and a recent report from ARK Invest said that short-term Bitcoin investors had no choice but to capitulate in August as the percentage of Bitcoin supply in profit fell by 14 percentage points. 

Although many traders view significant price dips as buying opportunities at this point in the Bitcoin halving cycle, a notable bearish move was Bitcoin’s price falling below its 200-week moving average for the first time since June 2023.

As shown in the chart below, the 200-WMA generally acts as a key support level during major downtrends and ARK suggests that any future bearish catalysts could see BTC price fall as low as $20,300 where its realized price currently resides.

Despite the rather dismal short-term outlook for the crypto market, a more optimistic view of Bitcoin’s dip below the 200-WMA would highlight the fact that dips below realized price and the long-term moving averages presented cyclical buying opportunities. Investors who accumulated when price dipped below both metrics in 2019, 2020 and early 2022 have found themselves in deep profit within the next 6 months.

Analyst Ben Lilly recently alluded to a similar occurrence within the Bitcoin dominance metric, suggesting that “Bitcoin’s about to take the driver’s seat again.”

According to Lilly:

“In terms of price action, right now I see a lot of similarities to what took place in 2019. And it has me anticipating a trend to unfold regarding Bitcoin over the next few weeks and possibly months. It has to do with Bitcoin dominance (BTC.D), a measure of Bitcoin’s market share of crypto based on its market cap. In the chart below, we can see that that rally in 2019 started back in 2018, when we got a nice double bottom (red box), followed by a solid run up until Q1 2019. Then, we trended down for a few months (first red arrow) before getting the massive reversal on April Fools’ Day (first green arrow).”

Comparing market participant sentiment from 2018-2019 to the current market sentiment, Lilly suggests that today’s price action reminds him of the pre-reversal period in 2019 when “we were in a winter, everybody was low energy, nobody cared about bitcoin or crypto.”

Stablecoin marketcap data also reflects the absence of bullish investor sentiment, and according to ARK, the fact that “the 90-day supply of aggregate stablecoins has dropped more than 20% from $162 billion in March 2022 to $120 billion today” is illustrative of the decline in market liquidity and investors’ confidence in engaging with Bitcoin and altcoins.

Obviously, the spot Bitcoin ETFs are on nearly every retail and institutional investors’ mind and until one is approved or the narrative of the upcoming Bitcoin halving takes precedence over the “ETF approval triggering a bull market narrative,” the market dynamics described above are likely to persist.