Analysts Caution “Buying the Dip” on Bitcoin Despite Signs of Stabilization

Despite Bitcoin showing signs of recovery after a dramatic downturn, analysts are urging caution to investors considering “buying the dip.”

Market Volatility and Factors: Bitcoin experienced a significant drop on Monday, triggering turmoil in the crypto market and causing analysts to reassess their trading strategies. This plunge was attributed to various factors, including the unwinding of the Japanese Yen carry trade, macroeconomic concerns, and escalating tensions in the Middle East.

Recovery Signs: Bitcoin’s price has rebounded to approximately $56,410.85 after briefly dipping below $50,000. However, experts like Markus Thielen, CEO of 10X Research, advise against viewing this as an immediate buying opportunity. Thielen highlighted the unique nature of this dip compared to those in April and June, noting that the current slow trading period might not see a quick recovery through increased leverage.

“Financial markets are like puzzles that need to be reassembled periodically, with new drivers of asset prices emerging,” Thielen remarked. He emphasized that August and September are typically slow trading months, with many institutional investors on vacation and less likely to deploy significant capital.

Risk Management: Thielen stressed the importance of appropriate risk management during this period, suggesting that better opportunities may arise once the slow trading period ends.

Macroeconomic Influences: Analysts also point to macroeconomic factors, particularly the rate changes between the Federal Reserve and the Bank of Japan. The Federal Open Markets Committee (FOMC) will not meet again until September 17, and traders are optimistic about a possible rate cut. The CME’s FedWatch tool indicates that 65.5% of investors anticipate a cut to 4.75% – 5%, while 32.5% expect a slight reduction to 5% – 5.25%.

Despite the Bank of Japan’s recent rate hike and the Nikkei 225 recovery, BloFin, a crypto exchange, warns that a rapid decrease in the rate gap could further impact Bitcoin and traditional stock prices.

Divergent Views: Contrary to the cautious outlook, some analysts support buying the dip, pointing to market stabilization. On-chain analysis firm IT Tech reported on CryptoQuant that the current leverage ratio is at its lowest since early 2020, indicating less reliance on borrowed money. They also noted that open interest in derivatives contracts has fallen to $14 billion, the lowest since mid-2021.

Conclusion: “The market appears sufficiently deleveraged post-crash, potentially leading to more stability and setting the stage for a recovery, assuming other market conditions remain favorable,” a 10X Research report noted. Despite these positive signs, analysts recommend caution due to the prevailing uncertainties in the broader economic environment.