Bitcoin in Consolidation Phase as Supply Crunches Ahead of Halving: Bitfinex

Bitcoin (BTC) has entered a consolidation phase, where uncertainty and fears abound about its price declining further.

According to the latest edition of the Bitfinex Alpha report, BTC is hovering around the $37,000 price range with signs of diminishing momentum and positive funding rates on futures contracts, a metric historically associated with market declines. Besides the decreasing momentum and positive funding rates on futures contracts, BTC also sees the potential for selling pressure from short-term holders realizing profits.

Bitcoin in the Consolidation Phase

After four consecutive weeks of positive price movements, BTC recently recorded its first negative weekly close. The leading digital asset made a second attempt to surge past the $38,000 mark, a rise that was short-lived due to trading activities in the futures and spot markets.

The Cumulative Volume Delta (CVD) metric for the futures market was negative as BTC’s price rose in the hour following the surge, indicating heavy profit-taking by market participants. This indication was confirmed by an 8.7% decrease in open interest, a clear sign that traders were locking in profits. The spot market also witnessed a “wall of limit sell orders.”

Bitcoin’s fall to $38,000 gave rise to the highest hourly trading volume last seen at the start of the month during its initial surge to the price mark. Bitfinex warned that while the current phase may look like a cooling-off period following BTC’s recent bullish trend, investors should tread cautiously.

Tightening in BTC Supply

Interestingly, major altcoins have outperformed BTC, rallying as the leading digital asset sees a concentration of supply among various investor cohorts. On-chain analysis has shown a significant tightening in BTC’s supply as the fourth halving event, expected to occur in April 2024, approaches.

“Currently, the short-term holder age band has inflated, corresponding with a 120 percent year-to-date increase in BTC’s price. However, the current cycle shows a lower proportion of short-term holdings compared to past cycles, indicative of the current concentration of supply in the hands of long-term holders,” Bitfinex said.

The available supply, a measure that tells the amount of BTC circulating and accessible for trading, and supply storage, which represents the amount of BTC held by long-term investors, show that long-term holders are accumulating BTC at a rate greater than the pace at which new BTC is produced. The supply storage rate exceeds the new BTC issuance by over 200%, indicating unprecedented levels in history.