Bitcoin – Here’s why fear might give way to ‘two-month euphoria’

Key Takeaways

Bitcoin cooled to $111K after a $124K peak as the Dollar Index climbed. Spot flows logged $44.6 million out, yet Exchange Reserves fell and Binary CDD showed holders stayed firm.

After Bitcoin’s [BTC] rally on the 14th of August that pushed it to an all-time high of $124,474, BTC trended downward, forming lower highs and lows.  At press time, it traded at $111,086.

Fundamentals suggested that liquidity was gradually building up, a development that could spark a rally.

AMBCrypto analyzed several factors that could contribute to this potential bullish wave.

Dollar liquidity on the rise

The Trade-Weighted U.S. Dollar Index (Broad), a metric comparing the U.S. dollar’s value against other currencies, has halted its decline and begun climbing.

Historically, an uptick in the Broad has been correlated with liquidity inflows into Bitcoin, often driving price increases. In fact, a similar pattern played out in 2021.

Naturally, this stirred optimism in risk assets.

Source: Alphractal

Analyst Joao Wedson explained this move reflected “dollar liquidity” flowing into assets like Bitcoin. According to him, the Broad might build momentum in the coming weeks before easing.

He argued the market may witness “two months of euphoria,” noting the current stage was only a “brief phase of fear.”

Alphractal’s Alpha Crypto Sentiment Gauge supported this view, showing the market remained in a neutral phase. A reading of 54 meant that neither buying nor selling activity has significantly driven price in the past day.

AMBCrypto also examined additional market metrics to determine Bitcoin’s possible price direction in the coming days and where sentiment may tilt.

Spot investors resume Bitcoin purchase

Spot investors have resumed accumulating Bitcoin after a significant $243 million sell-off on the 26th of August.

As of writing, this group of investors purchased $47 million worth of BTC, signaling the gradual return of bullish sentiment.

Source: CoinGlass

This activity coincides with a decline in Bitcoin Exchange Reserves, with holdings on centralized venues falling to 2.55 million BTC.

Having said that, investors shifting coins into private wallets usually signals long-term conviction.

Long-term investors hold firm

Long-term investor sentiment remains resilient despite Bitcoin’s recent pullback.

Data from CryptoQuant’s Binary Coin Days Destroyed (CDD) metric printed 0 at press time. This meant aged coins stayed dormant, reinforcing the view that long-term holders were not selling.

Source: CryptoQuant

As more liquidity enters the market, driven by dollar flows into risk assets, and both spot and long-term holders maintain a bullish outlook, the conditions for a potential rally are strengthening.