Bitcoin is currently in a tug-of-war at the critical support level of $110,000, with open contracts breaking $84.9 billion, setting a historical second-high. Although the stablecoin market has seen an increase of $4 billion in supply, it has not effectively flowed into the spot market to provide buying support. The Fear and Greed Index has sharply dropped to 39 points in the 'fear' zone, hiding the possibility of a counter-trend rebound behind the reset of sentiment, but the upward space is limited under the pressure of the bear wall.
Price tug-of-war: Support levels are precarious.
The recent price trend of Bitcoin is like a leaf boat in the raging waves, teetering amidst the fierce battle between bulls and bears. In the past week, BTC has consecutively set two phase low points, attempting to stage a rebound on August 25, climbing to $112,800 at one point, but the momentum quickly withered under the intense pressure of the bears.
As of August 30, BTC has seen a weekly decline of 4%, hitting a low of $107,452, marking a new low in nearly eight weeks. Notably, this price level is precisely the upper edge of the consolidation range from April to May 2024, holding significant technical support. If this support level is breached, the market could further dip to the $100,000 round number.
Meanwhile, the performance of the derivatives market is even more startling. Open contracts skyrocketed from $78 billion to $84.93 billion in just one week, just $1.2 billion away from the historical peak, indicating that the market leverage is at an extreme level. Such high leverage trading means that once there is a directional breakthrough in price, forced liquidations from both bulls and bears may trigger a chain reaction, leading to significant price fluctuations and liquidity sweeps becoming almost inevitable.
Emotional reversal: Only a step away from 'neutral' to 'fear'.
Market sentiment shifts often occur more rapidly and violently than price fluctuations. The Bitcoin Fear and Greed Index remained at 50 points in the 'neutral' range on August 28, but just a day later, it plummeted to 39 points, marking a new low in four months and entering the 'fear' zone. This rapid change reflects a sharp decline in investor confidence; although there has not yet been a clear capitulation sell-off, panic sentiment in the market has begun to spread.
Looking back at historical trends, Bitcoin has fallen into a similar 'fear' zone three times, each time triggering a strong rebound. Particularly in early May this year, when the Fear and Greed Index reached 42 points, BTC soared to a phase high of $123,000 in less than three weeks, an increase of over 20%.
However, this reset of market sentiment has key differences from previous instances. In the past three rebounds, the $107,000 to $110,000 range corresponded to the market being in the 'greed' zone, indicating overheated positions and top risks; whereas now, the same price range corresponds to the 'fear' zone, indicating a fundamental shift in market sentiment. From a technical analysis perspective, this change usually means that the range has shifted from a previous resistance level to a potential support level, creating conditions for Bitcoin to construct a counter-trend rebound structure, especially when liquidity starts to accumulate on the buying side.
Liquidity trap: The increase in stablecoins fails to quench the thirst for spot liquidity.
Stablecoins, as an important source of liquidity in the cryptocurrency market, often have significant impacts on market trends due to changes in their supply. In just the past three days, major stablecoin issuers have cumulatively released $4 billion in supply, which should have injected strong support into the market.
However, unexpectedly, Bitcoin's price not only failed to find support but also continuously broke through key support levels, indicating that the newly added stablecoin liquidity did not directly flow into spot buying. Worse still, on August 27, the net outflow of USDT reached $915 million, and in the following 48 hours, BTC's price dropped by 3.67%, with both trends highly correlated. This phenomenon clearly indicates that due to the lack of buying in the spot market, the decline at the $110,000 price level has not been effectively absorbed by the market, and selling pressure continues to be released.
In this liquidity trap, the risk appetite in the Bitcoin market has clearly weakened, leaning overall bearish. The continuous scarcity of spot buying has left a large amount of liquidity in a wait-and-see state, further intensifying market panic sentiment. Currently, there are no clear bottom signals in the market, and there is a $2 billion bear wall at the $115,000 level that has not been breached, indicating that the bulls are not yet prepared to pursue liquidity at this level.
Unless the bulls can concentrate their efforts to break through this wall of bears, Bitcoin's upward potential will be severely limited. Before market sentiment shifts back to 'greed', Bitcoin still faces a greater risk of decline, as downward movement remains the path of least resistance. For investors, it is crucial to stay highly vigilant under the current market conditions and closely monitor changes in liquidity and the power balance between bulls and bears to cope with potential volatility.
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