Despite significant accumulation by institutional investors in the spot market in recent months, the price of Bitcoin has remained confined to a narrow range, even showing a downward trend. If one carefully observes the market dynamics, the futures market, which is the main driving force behind Bitcoin's price, has recently begun to show signs of weakness.
According to data from CryptoQuant, the participation of whales (large holders) in the futures market has decreased. This is reflected in the 'average order size' (total trading volume divided by the number of trades), which shows that the market is more influenced by smaller retail trades rather than large orders from whales. The 'futures trading volume bubble chart' further confirms this observation, indicating that the market has entered a cooling phase of reduced trading activity.
Additionally, the 'Bitcoin futures cumulative trading volume difference (90-day CVD)' indicator highlights that sellers (Taker Sell) have been applying significant pressure on the market. This dominant position of sellers indicates bearish sentiment in the market, meaning that futures market participants currently expect Bitcoin prices to decline.
At this stage, the Bitcoin futures market is cooling down, with decreased whale activity and increased influence from retail investors, both exacerbating bearish sentiment in the market. Retail investors generally have a slower sensitivity to the market, with entry points often in the 'tail' phase. Unless whales return and engage in active trading, prices may continue to consolidate within a range or face further downward pressure.
As the Federal Reserve's (Fed) interest rate decision on September 17 approaches, the market's expectation for a rate cut has almost reached consensus; however, the cryptocurrency market has not ignited optimistic sentiment because of this.
According to the CME's FedWatch tool, traders currently estimate a 100% chance of a Fed rate cut in September, with most expecting a cut of 25 basis points (1 rate cut), but there is still a 10% chance that the Fed will directly cut by 50 basis points (2 rate cuts).
In August, the U.S. non-farm payroll added only 22,000 jobs, far below the economic experts' estimate of 75,000, and this soft employment data indeed adds reasons for the Fed to adopt a dovish stance.
Generally speaking, loose policies are beneficial for risk assets like Bitcoin, but the market has already priced in some expectations of interest rate cuts. Additionally, institutional investors are taking profits, while ETF fund flows remain relatively flat. These two forces offset each other, which is a key reason for the current limitations on Bitcoin's upward momentum, leading to price consolidation in a narrow range.
If interest rate cuts reflect economic weakness, it may deepen the market's risk aversion sentiment, while inflation remains persistently high, limiting the market's risk appetite. Before a strong inflow of ETF funds or a significant expansion of overall market liquidity occurs, Bitcoin's breakthrough of the $120,000 level remains a tough battle.
Data shows that in the first week of September, the inflows for Bitcoin and Ethereum spot ETFs were significantly lower than the highs reached in July and August. Since the upward momentum of this market cycle is mainly driven by institutional funds, the slowing inflows of ETFs may reflect that the overall market momentum is cooling down.
Currently, Bitcoin's key support level is at $110,000.
As long as Bitcoin can hold this level, the market structure will remain positive. The resistance level above is at $113,400, with stronger pressure zones at $115,400 and $117,100. If these obstacles can be broken, it indicates that the market has absorbed selling pressure and is ready to challenge new highs again.
Looking ahead, in addition to focusing on next week's Federal Open Market Committee (FOMC) meeting, attention should also be paid to potential catalysts both on-chain and off-chain.
On-chain data shows that the supply of stablecoins is approaching historical highs, indicating that the market has ample 'dry powder' (referring to idle funds that can be deployed at any time), ready to ignite the next wave of increases. At the same time, the balances of Bitcoin and Ethereum on cryptocurrency exchanges continue to decline, reducing recent selling pressure.
Off-chain, attention needs to be paid to the latest developments in regulation, especially the regulatory framework integration pushed by the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), as well as ETF fund flows. These will continue to sway market sentiment.
As of now, the total assets of U.S. money market funds have increased by $52.37 billion, reaching a historical high of $7.26 trillion. This enormous capital could drive Bitcoin and other altcoins into the next round of increases. As the Federal Reserve further cuts interest rates, retail funds may flow from money market funds into stocks, cryptocurrencies, and other assets. If the yield on money market funds drops from 4.5% to 4.25% or 4%, investors will reallocate funds to stocks and cryptocurrencies.
