Bitcoin, Ethereum rebound but still show ‘overheated signals’ — K33 Research

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The downturn in Bitcoin’s (BTC) price over the last week has led to a “suboptimal” market structure, signaling an overheated market, according to analysts from crypto research firm K33 Research. 

In the “Ahead of the Curve” report published on March 19, K33 head of research Anders Helseth and senior analyst Vetle Lunde said Bitcoin’s “slow bleed” and the steadily declining prices across the crypto market accompanied by high funding rates have exposed cryptocurrencies to “ leverage-induced amplified downside volatility.”

The analysts explained that Bitcoin has lost over 13% of its value over the past week after hitting an all-time high of $73,835 on March 14. Ether (ETH) and BNB Chain’s BNB (BNB) have also lost 17% and 1% of their value, respectively, per the report.

“Bitcoin is currently trading in a 14% drawdown from its all-time high. In all prior bull markets, Bitcoin has seen drawdowns as deep as 30% before recovering.”

Performance of top three cryptocurrencies by market cap. Source: K33 Research

However, futures open interest is “holding firm while perps maintain significant premiums.”

Helseth and Lunde added that the overheated conditions were supported by the shallow or negative inflows into Bitcoin investment products last week.

The chart below shows that Bitcoin exchange-traded products (ETPs) have seen declining inflows, with March 18 “seeing a new yearly high daily net outflow of 4,453 BTC.”

Daily global net BTC ETP flows. Source: K33 Research

The negative flows stem from outflows from Grayscale’s converted Bitcoin Trust exchange-traded fund (ETF), which saw $642 million exit the ETF on March 18, according to data from Farside Investors.

The other nine new ETFs saw shallow inflows, with net outflows resting at $154 million on March 18.

Bitcoin ETF flow table. Source: Farside Investors

The K33 research analysts, however, cautioned that it was “too early” to determine whether the spot Bitcoin ETFs have reached a saturation point and whether the recent activity represents a regime change.

“While the three-day flow is negative, the weekly net flow to Bitcoin ETFs still sits at a solid 27,000 BTC due to back-to-back massive flow days until Wednesday last week.”

Nonetheless, shallowing ETF flows have been a key contributor to Bitcoin’s “adverse price” action.

Related: Bitcoin price feels FOMC friction as trader eyes trip to mid-$50K zone

Bitcoin could find support around the $50,000 support level

Data from Cointelegraph Markets Pro and TradingView showed Bitcoin attempting to recover the $64,000 level after dropping under $62,000 on March 1.

The supply area between $64,500 and $63,500 is a key support that traders and analysts are looking out for, as a breach of this level could result in deeper corrections.

“A normal Bitcoin bullrun pullback is 30%. Back in December, we were already in the longest winning streak in Bitcoin’s history,” founder of Capriole Investments Charles Edwards said in a post on X.

“A 30% pullback would be $51K. These are all levels we should be comfortable expecting as possibilities.”

Citing a bearish technical setup, analyst Peter Brandt projected BTC’s drop toward $50,000.

“Bitcoin $BTC completes H&S top on Factor Real Range Chart,” Brandt said in a commentary on X accompanying the chart below.

“BTW, a correction to mid/upper $50s would retest the upper boundary of the advancing channel from which price thrust from on Feb 26/27.”

BTC head and shoulders chart pattern. Source: Peter Brandt

As reported by Cointelegraph, the meeting of the Federal Open Market Committee in the United States remains this week’s main focus on the macro front, not just for the crypto market but for all risk assets across the board.