$50,000 on the horizon if it breaks below the key support level

• Bitcoin Price Tests Key Support Level at $56,000; a close lower could see BTC’s downtrend persist.
• U.S. spot Bitcoin ETFs saw outflows this week totaling $536.1 million.
• Lookonchain data shows that institutions and whales are selling their BTC holdings.
• On-chain data shows a bearish picture, with daily active addresses falling, the long-short ratio below one and the Coinbase premium index falling.

Bitcoin (BTC) price is testing the key support level at $56,000 on Friday, consolidating with a 1% drop this week. If it breaks below this support, a continued downtrend is likely for BTC, as suggested by substantial exits from US spot Bitcoin ETFs, rising institutional selling and bearish chain indicators.

U.S. spot Bitcoin ETFs are seeing outflows and institutions are selling

Institutional flows did not support the price of Bitcoin this week. According to Coinglass data, U.S. spot Bitcoin ETFs saw outflows through Thursday, totaling $536.1 million in net outflows; this outing has occurred continuously since August 27.

Net flows can help gauge investor sentiment toward Bitcoin. If the flow continues, the price of Bitcoin could fall further. The total Bitcoin reserves currently held by the 11 US spot Bitcoin ETFs is $42.26 billion.

Bitcoin Spot ETF net flow chart

Additionally, Lookonchain data shows that institutions may be selling their BTC holdings. Ceffu, an institutional custody, asset management and OTC settlement solutions company, deposited 2,000 BTC from Monday to Wednesday and a total of 3,063 BTC worth $182 million to the Binance exchange on August 26. This transfer to the crypto exchange could signal that Ceffu is ready to sell these holdings.

Additionally, a whale deposited 1,000 BTC worth $55.63 million on the Binance exchange on Friday.

Weak NFP provides support, but not enough

The US economy added 142,000 jobs in August, slightly less than the 160,000 expected. Bitcoin reacted positively to the news, rising about 1.5% in the first 30 minutes after the data was released. Signs of a weakening labor market raise the odds that the US Federal Reserve (Fed) will opt for a quick interest rate cut at its next meeting in September, a scenario that generally favors risk assets such as cryptocurrencies as lower rates boost the economy.

However, Bitcoin price failed to recover significantly as investors saw the numbers as weak but not alarming, raising doubts about the Fed’s next moves.

Chain data shows negative bias

CryptoQuant’s Coinbase Premium Bitcoin Index, a key indicator of how investors with large wallets are behaving, suggests waning interest from whales in the top crypto. The indicator shows the difference between Coinbase Pro price (USD pair) and Binance price (USDT pair). Coinbase Premium data is one of the indicators showing a sign of whale accumulation as the Coinbase Pro platform is considered the gateway for institutional investors to purchase cryptocurrencies.

For Bitcoin, the index fell from 0.013 to -0.04 Monday through Thursday, trading below its 14-day simple moving average (SMA) at 0.010. This indicates that whales are continuously selling at a lower premium. Additionally, it shows a decline in investor interest and activity in Coinbase.

Coinbase Premium Bitcoin Index Chart

Moreover, Coinglass’ Bitcoin long-short ratio is at 0.93, its lowest level since August 28, which means more traders anticipate the asset’s price to fall.

Bitcoin long-short ratio chart

Santiment’s Daily Active Addresses Index also paints a bearish picture as it helps track network activity over time. An increase in the metric signals greater use of the blockchain, while a decrease in addresses indicates lower demand for the network.

For BTC, Daily Active Addresses fell from 836,960 on August 30 to 685,350 on Friday, a steady decline since mid-March. This indicates that the demand for BTC’s use of the blockchain is decreasing, which could propel the price of Bitcoin lower.

Bitcoin Daily Active Address Chart

Is BTC out of the woods?

Bitcoin was rejected after retesting its 50% price retracement level at $59,560 (drawn from a late July high to an early August low) on Monday and fell 5% over the next three days. As of Friday, it continues to trade slightly lower at around $56,000.

If BTC closes below the daily support level of $56,022, it could drop 3.5% to retest the psychological level of $54,000.

The Relative Strength Index (RSI) and the Awesome Oscillator (AO) momentum indicator on the daily chart are trading below their respective neutral levels of 50 and zero, respectively. Both indicators suggest weak momentum and a continuation of the downtrend.

If the bears are aggressive, the overall crypto market is negative and BTC closes below $54,000, it could extend an additional 7.5% decline to retest daily support at $49,917.

BTC/USDT Daily Chart

However, if Bitcoin price breaks the $59,560 resistance and closes above $62,019, the 61.8% Fibonacci retracement level, the bearish thesis will be invalidated. In this scenario, BTC could extend the positive move by 5.5% to revise its daily resistance level at $65,379.