Bitcoin rebounds from key support, but on-chain data signals a bearish outlook

• Bitcoin price is holding above the $54,000 support level tested on Friday.
• U.S. spot Bitcoin ETFs saw outflows last week, while CryptoQuant’s Coinbase Premium Bitcoin Index posted a slight gain.
• On-chain data paints a bearish picture, with declining daily active addresses and a negative open interest-weighted funding ratio.

Bitcoin (BTC) bounced back slightly on Monday, extending the weekend rally after prices rebounded from key support at $54,000 on Friday. This slight recovery comes amid slight gains in the Coinbase Premium Index over the weekend. However, the recovery could be short-lived as on-chain data continues to trend downward, as shown by the drop in daily active addresses and a negative OI-weighted Funding Rate.

Daily Market Reasons: Institutional BTC Demand Declines

• US spot Bitcoin ETFs saw a total net outflow of $706.1 million last week, a sign of declining market sentiment, according to Coinglass data. Combined Bitcoin reserves held by the 11 U.S. spot Bitcoin ETFs stand at $40.97 billion, down from $41.68 billion a week earlier.

Bitcoin Spot ETF net flow chart

• Santiment’s Daily Active Addresses index, which tracks network activity over time, also paints a bearish picture for Bitcoin. 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 726,380 on September 6 to 597,560 on Sunday, extending a downtrend that began in mid-March. This indicates that demand for BTC’s use of the blockchain is declining, which does not bode well for Bitcoin’s price.

Bitcoin Daily Active Address Chart

• According to Coinglass’ OI-weighted funding ratio data, the number of traders who are betting that the price of Bitcoin will fall more is higher than those who anticipate a price increase. This index is based on futures contract yields, which are weighted by open interest rates. In general, a positive rate (longs pay shorts) indicates bullish sentiment, while negative numbers (short pay longs) indicate bullishness.

In the case of Bitcoin, this metric is -0.0008%, reflecting a negative rate and indicating that shorts are paying longs. This scenario often signifies bearish sentiment in the market, suggesting potential downward pressure on the price of Bitcoin.

Chart of Bitcoin OI Weighted Funding Rate

• CryptoQuant’s Coinbase Premium Bitcoin Index, a key indicator of how investors with large wallets are behaving, suggests increased 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 rose from -0.008 to 0.020 from Saturday to Monday, trading above its 14-day simple moving average (SMA) at -0.009. This slight increase indicates that the whales are showing signs of stocking up. Additionally, investor interest and activity in Coinbase has increased slightly.

Coinbase Premium Bitcoin Index Chart

Technical Analysis: BTC holds above $54,000

Bitcoin rejected $59,560, its 50% price retracement level, on September 2 (pulled from a late July high to an early August low) and has fallen 8.7% over the next four days. It found support around the $54,000 level on Saturday, trading just above $55,316 on Monday.

If BTC closes below the $54,000 level, it could drop 7% to retest the next daily support at $49,917.

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.

BTC/USDT Daily Chart

However, the bearish thesis will be invalidated if Bitcoin price breaks the $56,022 resistance. In this scenario, BTC could extend the positive move by 6% to review its 50% price retracement level at $59,560.