Bitcoin (BTC) price dropped 5.42% over the last 24 hours to hit a new multi-week low at $57,151 on May 1. On-chain data shows that a slowdown in Bitcoin demand growth and increased open short positions may be responsible for the latest drawdown, and it’s possible that new lows will be in store for BTC.
Reporting from CryptoQuant attributes BTC’s latest decline to a slowdown in demand characterized by decreased growth in Bitcoin balances among permanent holders, slowing spot Bitcoin ETF demand and an increase in short positions in the futures market.
CryptoQuant data shows that demand from permanent holders (investors who only purchase Bitcoin and never sell) fell by 50% in April, from over 200,000 BTC in late March to about 90,000 BTC.
“Accelerating demand growth is needed for prices to bottom and eventually rally significantly.”
The chart above reveals that this metric has “reached levels similar to early March when Bitcoin also experienced a meaningful correction,” dropping 7% immediately after breaching its all-time highs.
Demand from whales has been declining since late March,, and according to CryptoQuant analysts, BTC price corrections are usually driven by slower growth in demand from large investors.
“Bitcoin whale demand growth (purple area) peaked at a monthly growth rate of 12% in late March and has now slowed down to 6%.”
The analysts also said that the slowdown in Bitcoin demand was evinced by declining purchases from spot ETFs in the U.S., which also added to the sell-side pressure.
“The daily purchase of Bitcoin from ETFs has plummeted to basically zero currently, after peaking in mid-March at more than $1 billion,” noted the report, adding that "a new wave of Bitcoin purchases from ETFs is needed to refresh demand growth.”
Another metric that the on-chain data analytics firm used to explain the slowdown in Bitcoin demand was the “traders’ unwillingness to pay more to open long positions” as sell orders outpace buy orders.
Bitcoin’s funding rate has dropped to a year-to-date low, indicating traders’ unwillingness to “pay as much as before to open long positions.”
Instead, “the recent price decline has been caused by traders opening short positions, expecting prices to decline further,” the report noted.
Analysts agree that downside is the likely direction for Bitcoin price
The ongoing market correction has left market participants wondering how low Bitcoin price can go before a trend reversal occurs.
CryptoQuant analysts set the lower target within the $55,000 to $57,000 demand zone, which is “10% below the current cost basis of traders of $63,000.” Traders’ cost basis has been known to offer support for prices during bull markets.
“The current Bitcoin price is already below traders’ cost basis.”
For popular analyst Scott Melker, $52,000 is as low as the BTC price can go in the short term. Melker said the correction is still mild for a bull market since the daily RSI is not yet oversold.
“This is still only a 23% correction, very shallow for a bull market and consistent with other corrections on this run. We are yet to see a 30-40% pull back during this bull market, like those of the past.”
Continuing, Tuur Demeester, a Bitcoin analyst, spotted BTC trading at $60,409, saying $50,000 could be the next stop for Bitcoin now that the $60,000 support was lost.
Trader and analyst Mags said that if Bitcoin closes below $60,000 on the weekly timeframe, traders should “expect a much deeper retracement, till $40,000 and even lower.”
“In this cycle so far, we have seen 4 pullbacks between 20-22%. If we witness something similar, a -22% correction from the local high would put us at $58,000 - $57,500.”
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.