Why Bitcoin’s [BTC] recovery may be restricted despite upside prospects
- Several macro factors could stop BTC from a quick resurgence.
- The UTXO signaled a possible preparation for a pre-halving hike.
Bitcoin’s [BTC] recent recovery might have brought hope to many investors and enthusiasts, signaling a potential reversal of the bearish trend that has plagued the cryptocurrency market.
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However, short-term investors might need to approach this recovery with caution. This is because there are factors that may restrict Bitcoin’s revival, MAC_D, a CryptoQuant analyst opined.
The on-chain analyst mentioned that the coin’s prospect could be limited significantly because of the macroeconomic factors. First, he pointed to the action by the U.S. government to sell a part of their holdings.
Down on the reserves
This has negatively impacted the Bitcoin U.S. to The Rest Reserve Ratio. The metric considers the country’s entities, including bank assets and exchange funds, in relation to the rest of the entity supply.
At press time, the ratio was down to 0.90. Thus, the unfavorable economy had forced the country to sell a notable part of its long-term assets. This has also been coupled with proposals for stricter regulation for the entire crypto market, in turn creating a bearish move.
The analyst also referred to history when accumulation by the U.S. government impacted an incredible rise in the BTC value. MAC_D wrote,
“In the past, when US institutional investors’ BTC holdings increased during major bull markets, the price rose significantly.”
Often touted as a safe-haven asset and a hedge against economic uncertainty, BTC has built up a 64% increase on a Year-To-Date (YTD) basis since the traditional market crises.
If traditional markets experience prolonged instability or a severe downturn, investors may resort to liquidating their Bitcoin holdings to cover losses or meet margin calls, resulting in downward pressure on the cryptocurrency.
However, the analyst also cited other reasons that could hinder quick recovery. This includes the decrease in stablecoin supply and the shortfall of smart money traders in the current market.
Getting prepared for the upswing
Although he maintained that Bitcoin still had a good upside potential this year, he also opined that it was likely to follow the up-and-down performance of 2019 rather than the continuous uptrend of 2015.
In another publication, oinonen_t noted that the lack of liquidity has also played a part in the recent BTC fall. He, however, mentioned it was more of a technical issue rather than a fundamental one.
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Backing his opinion, the analyst gave an insight into the 200-day Moving Average (MA). He also compared it to the Unspent Transaction Output (UTXO). As of the time of publishing, the 200 MA, which acts as a support for BTC had deflected, leading to a decrease in spot-market liquidity.
On-chain data, on the other hand, showed that UTXO was showing signs of pre-having accumulation after a recent decline in the Bitcoin Epoch. Therefore, this could tilt BTC toward technical correction and on-chain drive for a price increase.