Market Wrap: Bitcoin Declines as Indicator Shows Rally Could Lose Steam

Bitcoin’s price dipped below $57,000 on Tuesday as analysts said the extreme buying in the market could mean the rally may soon be running out of steam.

They pointed to the bitcoin Fear & Greed Index, which entered “extreme greed” territory last week and is at the highest level since early September, which preceded a sharp sell-off in bitcoin.

Comments from J.P. Morgan CEO Jamie Dimon at a conference on Monday contributed to a sour mood across crypto markets. Dimon stated that governments will regulate bitcoin, which he personally thinks is “worthless.”

On the regulatory front, “China’s domestic energy and power crunch has led to increased scrutiny of mining projects in various regions, such as the seizure of idle mining machines in inner Mongolia,” WuBlockchain wrote in a Monday newsletter.

Some analysts consider the recent rally in crypto prices is being driven by continued speculation the U.S. Securities and Exchange Commission (SEC) will finally approve a bitcoin exchange-traded fund (ETF), although others are skeptical an approval will have a beneficial effect on bitcoin’s price.

“The market is over-emphasizing (SEC Chairman) Gary Gensler’s public comments about support for the [Chicago Mercantile Exchange] and futures,” Jeff Dorman, chief investment officer at Arca, a digital asset management firm, in an email to CoinDesk. “We believe the concerns the SEC has raised historically regarding market manipulation of bitcoin and unregulated exchanges have not been solved.”

Still, some analysts remain optimistic, pointing to improving blockchain data and bitcoin’s rising price trend.

Increasing transaction activity on the Bitcoin blockchain could point to fresh buying demand this quarter, according to data compiled by Glassnode.

“Active entities, the count of individual participants on-chain each day, has grown 19% to this week, reaching around 291K active entities per day,” Glassnode wrote in a blog post. “More active market participants have historically correlated with growing interest in the asset during early stage bull markets.”

The value and size of transactions are also increasing, which could mean large buyers are starting to accumulate BTC after the sell-off last month.

The chart below shows bitcoin’s transfer volume as a percentage of the realized market capitalization. Transfer volume greater than 3% of the realized market cap typically marks the beginning of a bullish market phase as the relative value of network utility increases, according to Glassnode.

Most digital assets in the CoinDesk 20 ended the day lower.

Notable winners as of 21:00 UTC (4:00 p.m. ET):

Notable losers: