Bitcoin’s August Decline and Potential Recovery Indicators

Bitcoin’s August Struggles and Future Outlook

Bitcoin (BTC) has experienced a tumultuous August, witnessing a significant decline of over 13%. At one point, the cryptocurrency plummeted to as low as $50,000 within the first five days of the month. This downturn can be attributed to several factors, including the unwinding of yen carry trades and increasing concerns regarding the U.S. economy.

Despite these challenges, there are reasons for market participants to remain optimistic. Two key indicators, in particular, suggest a potential rebound for Bitcoin.

Long-term Options Skew Remains Bullish

Even amid the market’s downward trend, Bitcoin’s 180-day call-put skew has maintained a steady position above 3. This indicates a prevailing bias towards price strength over the next six months, as highlighted by data from Amberdata. A call option provides the holder with the right, but not the obligation, to purchase the underlying asset at a predetermined price at a later date, reflecting a bullish sentiment in the market. Conversely, a put option represents a bearish outlook. The options skew serves as a measure of investors’ willingness to pay for asymmetric payouts, with positive values indicating a stronger demand for calls compared to puts.

This bullish long-term pricing aligns with the perspective of several market observers. They believe that once the initial shock from the recent global market volatility subsides, Bitcoin is poised to recover. One notable insight from the founders of the newsletter service LondonCryptoClub states:

• “The U.S. slowdown is clearly underway, and the Federal Reserve, currently behind the curve, will likely need to implement more aggressive rate cuts than previously anticipated.”
• “As U.S. Treasury yields and the dollar adjust downward, this scenario becomes incredibly bullish for Bitcoin.”
• “Additionally, with China increasing its stimulus efforts and liquidity injections while the dollar weakens, global liquidity conditions are set to improve significantly.”
• “From our perspective, Bitcoin represents the most compelling trade in a scenario where the Fed is lagging and likely to slash rates further while enhancing liquidity.”

The founders concluded, “Prepare for a volatile few weeks ahead, but don’t lose sight of the overarching positive outlook.”

Cumulative Volume Delta (CVD) Indicates Dip-Buying on U.S. Exchanges

The recent rapid sell-off in Bitcoin has been marked by noticeable dip-buying activity on prominent U.S. trading platforms such as Coinbase, Gemini, and Kraken. This observation is based on the cumulative volume delta (CVD) data collected by Paris-based Kaiko.

The CVD measures the total difference between the volume of trades executed at the ask price (buying) and those executed at the bid price (selling) over a specific timeframe. A rising positive CVD signifies that buying volume surpasses selling volume, while a declining or negative CVD indicates the opposite.

Since August 1, the CVD on Coinbase, Gemini, and Kraken has predominantly remained in positive territory, suggesting a trend of net buying pressure or bargain hunting during the recent price declines. Kaiko noted:

• “Interestingly, while offshore exchanges like Binance and OKX have experienced pronounced selling since Friday, BTC’s cumulative volume delta (CVD) on most U.S. platforms has stayed positive.”
• “This suggests that a segment of traders is actively engaging in dip-buying.”

Overall, the market conditions create a complex yet intriguing landscape for Bitcoin, as traders and investors navigate the challenges while keeping an eye on potential rebounds.