Bitcoin price big dump, Spot ETF buying may be the key to stop the fall

After the price of Bitcoin quickly fell below the important support level of $56,000, traditional technical analysis became difficult. The bottom of this round of decline has become the most concerning issue for investors. In moments of market panic, it might be helpful to return to the basic mechanisms of price formation, analyze the supply and demand relationship of Bitcoin, and study the states and dynamics of buyers and sellers, in order to find the best buying point in a chaotic market.

Currently, the selling pressure mainly comes from several sources: the German government's sell-off, Mt. Gox exchange compensation, early-year profit-taking, and miners following suit with sell-offs, etc. These trades mainly take place on cryptocurrency exchanges and can be tracked through on-chain behavior monitoring.

The buying pressure mainly comes from investors in the US Bitcoin Spot ETF, who participate through stock accounts. It can be tracked through the ETF's intraday trading volume and post-market fund flow indicators.

In the long term, the buying power this year may continue to exist. There are two main reasons: first, the U.S. may cut interest rates, which would benefit the rise in risk asset prices; second, Trump's campaign outlook is optimistic, which may improve the regulatory environment for cryptocurrencies. By analyzing the correlation between Bitcoin prices and U.S. stocks over the past six months, we found that the recent big dump in the last two days is related to the inability to purchase Bitcoin Spot ETF due to the market closure.

From the CME futures trading volume, the sentiment of institutional investors appears to be stable, possibly waiting for a bottom-buying opportunity. The trading volume of CME Bitcoin futures has not fluctuated significantly with the coin price, indirectly indicating that institutional investors are maintaining a wait-and-see attitude. In the context of macroeconomic benefits but with specific selling pressure, such an unprecedented event may provide buying impetus for long-term investors optimistic about Bitcoin.

The performance of Bitcoin Spot ETF after the resumption of trading on July 5 is worth paying attention to. Recently, the sentiment in the US stock market has been optimistic, with technology stocks hitting new highs repeatedly. Whether Bitcoin ETF buyers will follow the coin price in a big dump or imitate US stocks in bottom-fishing remains to be seen. Among them, real-time trading volume during the session and net inflow data after hours are core observation indicators. Higher trading volume represents stronger bottom-fishing enthusiasm, which is expected to send a stop-fall signal to the market. If it can bring net capital inflow and change the previous slight net outflow situation, it will bring actual incremental funds to the chain and further enhance investor confidence.

In terms of selling pressure, the German government and Mt. Gox are two major sources. The German government has seized a total of 50,300 Bitcoins, of which approximately 8,080 have been transferred out, leaving 42,270 yet to be sold, creating uncertainty regarding future selling pressure. Mt. Gox is expected to compensate creditors with 142,000 Bitcoins, but according to news from the Japanese crypto community, more than 70% of the claims may have been acquired by institutional buyers, resulting in actual selling pressure possibly being lower than market expectations. On July 5, Mt. Gox transferred out approximately 50,000 Bitcoins, of which 1,544 were sent to exchanges, and 47,000 were transferred to new addresses with no further developments.

In addition, miner sell-offs are also a contributing factor to this round of fall, but this selling pressure may stop as Bitcoin stabilizes. Due to the halving of Bitcoin mining rewards at the beginning of the year, miners' profitability has dropped to its lowest level in two years. Some unprofitable miners are forced to liquidate and exit, which also brings potential sell pressure.

Overall, the buying pressure is based on long-term optimism, while the selling pressure stems from emotional panic caused by special events. These non-repetitive events may provide buying opportunities for investors who are long-term bullish on Bitcoin. From past experience, the market's emotional digestion of the selling pressure from special events generally does not exceed two months. This round of decline started on June 7, and it is expected to be gradually digested after August 7. The maximum daily drop recorded in the past two days could be the lowest point of this round of decline.