Bitcoin: the retracement might not be over yet

Yesterday, Bitfinex released its latest Alpha report dedicated to the recent retracement of the price of Bitcoin. 

The report notes that the retracement was 29.7%, which is the second deepest correction of this bull cycle, and especially that institutional buyers have not yet returned with sufficient strength to counteract the selling pressure.

This leads to thinking that the current retracement phase might not have concluded yet. 

The retracement of Bitcoin

The current retracement of the price of Bitcoin in theory started a few days after the all-time high, reached on January 20th above $109,000. That was also the day Donald Trump was inaugurated at the White House.

At first, it was just a return to $100,000, but already at the beginning of February, it fell well below this threshold. However, until February 23, it seemed it could simply continue the lateralization phase that began in mid-November, but that was not the case. 

In fact, between February 24 and 28, it dropped to $78,000, which is well below the minimum level of the previous lateralization phase. 

At that point, it became clear that the decline that began at the end of January was not just a temporary movement within a phase of lateralization, but the beginning of a true phase of retracement. 

The retracement of the Bitcoin price continues

The fact is that this phase of retracement is still not giving any clear signal of being close to its end. 

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For example, the Bitfinex report highlights how there are continuous outflows from spot Bitcoin ETFs ($921.4 million in total last week), and this suggests that institutional buyers have not yet returned with sufficient strength to counteract the selling pressure.

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Although the selling pressure overall remains low, the buying pressure is extremely low, and in such a scenario, it seems really difficult for the price of Bitcoin (BTC) to bounce back.

In fact, by projecting forward the trend of the current retracement phase, two possible landing points can be glimpsed. 

The first is between 74,000$ and 76,000$, and it could also be reached soon, perhaps by the end of the month. 

The second, on the other hand, is between 68,000$ and 72,000$, and it might take more time to reach it, possibly even more than a month. 

However, these are only projections, not forecasts, therefore in the case of particularly favorable external events, this trend could theoretically also be interrupted. 

The weakening of demand

The main problem is the weakening of purchase demand, which is not only remaining weak but also shows no signs of wanting to reverse this trend. 

The Bitfinex report highlights how short-term holders, who are currently predominantly at a loss, are often the most susceptible to capitulation, and historically when new capital inflows slow down, this signals a weakening of demand. 

They write: 

“Without the intervention of new buyers, Bitcoin risks an extended consolidation or even a further decline as the weaker hands continue to exit their positions”.

At this point, the key factors for Bitfinex analysts become the long-term holders and institutional demand, because if they were to start absorbing the supply, a new accumulation period could potentially begin, capable of stabilizing price action and reversing sentiment.

The USA economy: recession risk

Behind all this is probably the evolving economic situation of the USA. 

According to Bitfinex analysts, the U.S. economy is at a crossroads, with a resilient but cooling labor market, moderating inflation, and declining consumer confidence. 

They write: 

“Consumer confidence has collapsed to the lowest level in over two years, with rising inflation expectations and economic uncertainty dampening the outlook for both households and businesses. As trade policies and inflationary risks evolve, the response of the Federal Reserve will be crucial in determining whether the economy will stabilize or weaken further”.

To this must be added that tomorrow the Fed will announce its new decision on interest rates. 

Although it is practically certain that he will announce to leave them unchanged, the key point for the markets will be to try to understand from President Powell’s words if the American central bank is more oriented towards two or three interest cuts during the second half of the year, starting from June, or if it has changed its mind. 

To tell the truth, there is probably extreme uncertainty, also because it is not yet clear what the impact of the new tariffs on inflation will be. If the tariffs were to create significant problems for the US economy, or cause inflation to rise, the impact on the financial markets could be dire.