Bitcoin (BTC) experienced a 3.4% decline between Aug. 26 and Aug. 27, following a breach below the $63,500 support level, which had held for two days. This downturn can be partly attributed to deteriorating macroeconomic expectations but also reflects decreased activity on the Bitcoin network.
Traders are questioning whether these factors are fully priced in and how much further Bitcoin’s price might fall if the $61,000 support level fails.
Nvidia earnings set the tone for risk markets, including Bitcoin price
Crypto and stock market trader blockchainedbb predicts that Bitcoin’s price could rise to $65,000, having accurately forecasted a drop to $61,000 beforehand.
According to a post on the X social network, the potential price increase could follow stronger-than-expected Nvidia earnings, leading to a “smart money” movement to liquidate “late shorters”—traders who placed leveraged bets on BTC’s decline. However, strong performance in tech stocks doesn’t necessarily bode well for Bitcoin, and some analysts suggest the opposite effect might occur.
Nomura analyst Naka Matsuzawa suggests that upcoming tech earnings could challenge investors’ expectations of US interest rate cuts. Companies such as Nvidia, CrowdStrike, Salesforce, and HP Inc. are set to report earnings on Aug. 28, while Autodesk will present its results on Aug. 29. According to Matsuzawa, if corporate profits remain robust, the odds are that subsidies for tech stocks could diminish, as reported by CNBC.
Currently, the bond market is pricing in a 100% certainty of at least a 0.50% interest rate cut by the year-end, as indicated by the CME FedWatch tool. Additionally, there is a 71% probability of the Federal Reserve (Fed) cutting rates by 0.75% or more, so any reversal of this expectation could trigger a stock market correction. This potential shift explains why Bitcoin investors are concerned that such a reversal might negatively impact BTC’s price.
The US home price increase, as revealed by the S&P CoreLogic Case-Shiller Index, showed a 5.4% rise year-over-year in June. Brian Luke, head of commodities, real, and digital assets at S&P Dow Jones Indices, noted that the rise in home prices outpacing the Consumer Price Index is adding pressure to the political agenda ahead of the election season, as reported by Yahoo Finance.
In essence, the recent housing market data does not support aggressive interest rate cuts, which is unfavorable for risk-on markets, including Bitcoin. Some analysts argue that Bitcoin’s correlation with the traditional stock market has been low, which is true, but when overall risk perception increases, traders tend to seek safety in assets they consider secure, such as gold and highly profitable companies.
Drop in Bitcoin network activity negatively impacts investor appetite
Beyond the macroeconomic environment, part of the diminished investor interest in Bitcoin stems from declining network usage metrics. First, the 7-day active addresses have dropped to their lowest level in two months, typically indicating reduced retail activity. Even though whales and institutional investors may be accumulating, the data does not suggest increasing adoption by the broader audience.
For the week ending Aug. 26, there were 668,732 active addresses either sending or receiving BTC on the Bitcoin network, representing a 4% decline from two weeks earlier.
Related: 4 reasons why Bitcoin may see $60K before $70K
Similarly, Glassnode data shows that the median transfer volume has decreased to 0.00376 BTC, the lowest since December 2023. In summary, there are fewer users, and the average transaction size on the base layer has been declining.
Ultimately, the recent weakness in Bitcoin’s price can be attributed to the reduced likelihood of the US Fed fully implementing a 0.50% or 0.75% interest rate cut by year-end. This increases investor risk aversion as inflationary pressures continue to concern the government and on-chain data points to lower network activity.
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.