Vol.3 Technical Analysis |Why Bitcoin is Struggling: Declining Network Activity and Fed Uncertainty

Bitcoin’s price is down today due to macroeconomic pressures, declining activity on the Bitcoin network, and increasing doubts about the likelihood of a Fed rate cut. The cryptocurrency saw a 3.4% drop between August 26 and 27, following a breach below the critical $63,500 support level, which had held for a couple of days. This downturn reflects not only worsening macroeconomic conditions but also reduced network usage.

Analysts suggest that if the $61,000 support level fails, Bitcoin’s price could potentially fall further, possibly testing the $58,820 level. There’s some optimism that stronger-than-expected Nvidia earnings could lead to a price recovery, but this isn’t guaranteed. Positive tech earnings might actually reduce the chances of a Fed rate cut, which could negatively impact Bitcoin.

Currently, the bond market suggests a 100% certainty of at least a 0.50% interest rate cut by the end of the year, with a 71% probability of a 0.75% or more reduction. However, if the Fed decides against these cuts, it could trigger a stock market correction, potentially affecting Bitcoin as well. Additionally, recent data showing a rise in US home prices, outpacing the Consumer Price Index, suggests that aggressive rate cuts may not be on the horizon, which isn’t favorable for Bitcoin and other risk-on assets.

Furthermore, the decline in Bitcoin network activity is contributing to reduced investor interest. The seven-day active address count has dropped to its lowest in two months, indicating reduced retail participation. While larger investors might be accumulating, the overall data suggests that broader adoption isn’t increasing. For the week ending August 26, there were 668,732 active addresses on the Bitcoin network, representing a 4% decline from two weeks prior. The median transfer volume has also decreased to its lowest level since December 2023.

In summary, Bitcoin’s recent price weakness is driven by the reduced likelihood of significant Fed rate cuts by year-end, increasing investor risk aversion, and declining network activity, all of which are contributing to a more cautious outlook for the cryptocurrency.