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Bitcoin Bulls Target $122,000 Breakout Point, but Q3 Seasonality May Impede Momentum
The crypto market has been on a wild ride in recent months, with Bitcoin (BTC) leading the charge. After a tumultuous Q2 that saw the cryptocurrency lose nearly 50% of its value, BTC has bounced back strongly, breaching the $100,000 mark and sparking renewed optimism among traders. With the bulls setting their sights on a major breakout to $122,000, the question on everyone’s mind is: will they succeed? In this article, we’ll delve into the technical and fundamental factors driving this push and examine the potential hurdles that could stifle the bullish momentum.
The Case for a Breakout to $122,000
The bullish argument is built around the notion that Bitcoin’s recent price action is setting up a classic “cup and handle” formation, a technical pattern that often precedes a significant upsurge. The chart below illustrates this formation, with the recent breakout above the $90,000 level marking a crucial juncture.
As the cup and handle formation takes shape, the narrative among traders is that the “liquidity chase” is on. The idea is that Bitcoin bulls will aggressively push the price higher to access the vast liquidity pool at the $122,000 level. This thesis is supported by the fact that Bitcoin’s realized price (the average buying price of all addresses holding BTC) is still below this threshold, suggesting that there’s room for market participants to refill their positions.
Fading Spot ETF Flows
However, not everyone is convinced that the bulls will have it their way. One of the key concerns is the dwindling inflows into spot ETFs. The ProShares Spot Bitcoin Strategy ETF (BITO), for example, has seen its weekly inflows decline sharply in recent weeks, from around $1.5 billion in early July to just $150 million in the latest reporting period.
While this trend may not necessarily spell doom for the bulls, it does underscore the notion that some of the buying pressure driving the recent rally may be subsiding. In an environment where institutional investors are increasingly skeptical about Bitcoin’s short-term prospects, it’s unlikely that spot ETF inflows will be the primary driver of price increases.
Lack of Volumes
Another key impediment to a continued upswing is the lack of trading volumes. While Bitcoin’s 24-hour trading volume has been steadily increasing, it remains below the levels seen during the previous bull run. This is partly due to the reduced presence of retail traders, who have been disproportionately affected by the recent market volatility.
In a market where liquidity is essential for breaking out to new highs, the dearth of trading volumes could prove to be a significant hurdle. As traders become increasingly risk-averse, it’s possible that we’ll see a contraction in trading volumes, making it even more challenging for the bulls to sustain their momentum.
The Q3 Seasonality Factor
Finally, there’s the age-old Q3 seasonality issue to consider. Historically, Bitcoin’s performance has been lackluster during the third quarter, with the cryptocurrency often experiencing a period of consolidation or even decline. This could be attributed to a variety of factors, including the summer doldrums, reduced participation from retail traders, and the post-Easter rally fatigue.
While this seasonality factor doesn’t necessarily mean that Bitcoin will drop sharply, it does suggest that the bullish momentum may slow down in the coming weeks. As investors adjust their expectations and become more risk-averse, it’s possible that we’ll see a period of sideways trading or, at the very least, a more measured pace of growth.
In the short term, Bitcoin may experience a period of consolidation or even pullback, allowing the bears to make a more compelling case. However, this could also be an opportunity for long-term investors to accumulate BTC at discounted prices, setting themselves up for a potential upside break in the future. As always, it’s essential to stay adaptable and be prepared to adjust our thesis as new information becomes available.
