Bitcoin (BTC) Reclaims Key Levels Amid Federal Reserve Rate Cut

Bitcoin (BTC) has reclaimed the Short-Term Holder cost basis of approximately $61.9k, following a 0.5% interest rate cut by the Federal Reserve, according to Glassnode Insights. This rally could achieve technical significance if the price also holds above the 200-day moving average at $63.9k.

Executive Summary

Bitcoin's recent price movement has alleviated some pressure on short-term holders, who have been under strain due to net capital outflows. New investors are showing resilience, with realized losses being relatively small, suggesting confidence in the overall uptrend. The perpetual futures market displays a cautious recovery in sentiment, with gradually increasing demand but still below levels seen during strong bull markets.

A Shift in Market Gradient

After reaching an all-time high (ATH) in March, the capital inflow into the Bitcoin network slowed, resulting in diminishing price momentum. The market gradient had fallen into negative values in recent weeks, indicating more aggressive downside in the spot price compared to the intensity of capital outflows.

The current market structure resembles the 2019-20 period, where Bitcoin experienced extended consolidation after a strong rally in Q2-2019.

New Capital Flow Direction

The ongoing consolidation phase has pushed the spot price below the cost-basis of several short-term holder sub-cohorts since late June 2024. Despite many new investors being underwater, their unrealized losses are notably less severe than those seen during the mid-2021 sell-off and the March 2020 COVID crash.

This repricing of short-term holder supply to lower prices indicates a net capital outflow from the Bitcoin ecosystem. An indicator comparing the cost basis of two sub-groups (1w-1m and 1m-3m) shows that the market is experiencing a net outflow regime. However, a sustainable market reversal may be in its early stages.

Confidence of New Investors

As unrealized losses grow during a market correction, short-term holders tend to capitulate at a loss. Tracking their behavior around market inflection points can provide insights. New investors have shown higher confidence in the market compared to previous bearish trends, with relatively low magnitude losses.

A Long-Side Perpetual Premium

The perpetual futures market adds another dimension to understanding new capital confidence in the uptrend. The Futures Perpetual Funding Rate (7D-MA) shows speculators' appetite for paying higher interest rates for long positions. Although there has been a relative increase in long-biased leverage, it does not yet indicate a strong bullish sentiment.

The cumulative monthly premium long-side contracts have paid has significantly decreased from ~$120M per month around the March ATH to $1.7M per month in mid-September, with a modest uptick to $10.8M per month today. This indicates a market that has cooled significantly during the correction.

Summary and Conclusion

Bitcoin remains in a lengthy consolidation phase reminiscent of late 2019 and early 2020. The capital inflow into the Bitcoin network has slowed since the March ATH, challenging short-term holder profitability. Despite a local period of net capital outflow, new investors' confidence remains robust. There has also been a modest uptick in long-side bias in perpetual futures markets recently. Overall, the market has cooled from the excesses seen in March but has not broken the sentiment of many new Bitcoin investors.