Massive Liquidation Event Pushes Bitcoin to $46,000…. But Fundamentals Continue to Improve

Analysis of Bitcoin's performance
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By Jamie Holmes

Bitcoin saw a massive drop on September 7th after reaching highs near $52,000 as a flash crash erased all of the gains made since August 18th. After finding support near $42,600, the price is currently trading around the $46,000 level. 

The open interest across all exchanges for futures contracts dropped significantly after reaching a near 5-month high, falling from $12.81 billion on September 6th to $8.82 billion on September 8th, the lowest value in one month. As the price fell, there were over $2.3 billion worth of liquidations, the greatest since May 19th, causing the price to cascade downwards. 

Source: CryptoQuant

With open interest falling and the price of bitcoin moving lower, this means that the number of open or outstanding contracts held by market participants has fallen drastically, pointing to a continued downward momentum if the plunge in open interest continues. Alternatively, we may see some consolidation around the $45,000-$46,000 level before the market decides on the next direction. Going forward, we’d want to see a rising open interest for a continuation of the uptrend that’s been in places since mid-July.

Despite the price action being bearish, Bitcoin’s fundamentals continue to improve with the 7-day moving average of active addresses on the Bitcoin network continuing to recover from the lows seen during July and heading closer towards the important 1 million level.

Source: CoinMetrics

The number of addresses holding more than $100,000 and $1 million are rising towards the all-time highs seen during April 2021, another bullish sign for bitcoin. The chart below shows that there are a record number of addresses with at least $10,000 in BTC (with 18.42 million addresses holding at least $10,000), while the number of addresses with $100,000 or more and $1 million or more are closing in on the highs seen during April, suggesting large investors are still accumulating bitcoin. 

Source: CoinMetrics

Turning to the technicals, we see that bitcoin is currency trading close to the lower Bollinger Band on the daily chart. The lower band lies just above $45,000 and should provide a strong support level. With the price finding support near August 1st’s high of $42,614 on September 7th, as long as this level holds, we should look for a break above $48,190 for a resumption of the bullish price action. 

Source: TradingView

The 4-hour chart below shows that $45,000 is a key level to watch. In the early hours of September 8th, we saw a reversal at $45,017 with buyers pushing the price higher after sellers made an attempt at moving below $45,000. 

Source: TradingView

The importance of the $45,000 handle is also made clear by the chart below which shows the order flow of BTC-USD on Coinbase. A large buy wall of 53 BTC lies at $45,000 and another area of buying interest lies just above $44,700. 

Another zone with a large number of limit orders waiting to buy is found at $44,000 while the closest area with a large number of bids is at $45,500. If the price manages to break through any of these levels, then we could see a new trend form with targets to the downside of $45,000, $44,000 and $43,500 – areas of high liquidity that the market will likely be attracted to if there’s a break of $45,500. To the upside, there’s strong selling interest at $47,500, $49,500 and the psychological $50,000 handle. 

Source: TradingLite

Ethereum Hit by Congestion as NFT Craze Reaches Fever Pitch

With the JPEG summer in full swing and NFT popularity exploding (with OpenSea recently overtaking Uniswap as the largest gas guzzler on the Ethereum chain), the average transaction fees on Ethereum have shot up to highs not seen since May 2021. On September 8th, Ethereum co-founder Vitalik Buterin tweeted the need to move NFTs to Layer 2 protocols (such as Polygon) to reduce the fees on the main chain and put forward a cross-rollup portability proposal.  

The chart below shows the mean transaction fee for Ethereum reached $55.45 on September 7th, a near 4-month high. A high mean transaction fee suggests demand may be plateauing for Ethereum and the price may also follow the average fee paid lower once the market cools off. As we saw during May, once the demand for ethereum (and hence the transaction fees) start to decline, the price usually follow in the same direction, 

Source: CoinMetrics

Ethereum also saw a massive drop on September 7th, touching the psychological $3,000 handle before recovering to $3,400. However, the price has headed lower on September 10th, currently testing teh $3,300 level. The lower Bollinger Band lies at $2,900, providing a target for the downside, while we’d like to see ETH-USD regain the middle Bollinger Band at $3,474 to resume the bullish trend.

Source: TradingView

Looking at the order book data for Ethereum on Coinbase, immediate support is found at the $3,300 level with a large number of limit buy orders currently resting at this level. Below $3,300, we also see zones of high liquidity at $3,250 and $3,200. To the upside, the nearest sell wall lies at $3,530 and then $3,700. With the price closer to $3,300, this suggests a move to the upside is more likely, as the buy wall at this level was only put in place in the early hours of September 10th, which should act to skew the market to the upside. 

Source: TradingLite

Solana Surpasses DOGE and XRP to Become 6th Largest Digital Asset

While Ethereum experienced an explosion in transaction fees, a cheaper and faster competitor has been climbing up the ranks. Solana’s native currency SOL is now the 6th largest coin by market capitalization and recently surpassed both DOGE and XRP. While market capitalization is not a perfect metric, Solana also recently became the most valuable cryptocurrency by staked value with a staked value of $68.5 billion (versus $56.8 billion for Cardano and $24.2 billion for Ethereum 2.0). 

Source: CoinGecko

SOL-USD reached a record high of $216 on September 9th but the price has since fallen to around $178. The daily chart below shows a Gravestone Doji pattern was formed on September 9th, suggesting a top is in and a pullback is underway, with support likely to be found at $151.93, an important Fibonacci extension level. However, if the price of SOL manages to retake $196, then it could open up an advance to $223.37, the 423.6% Fibonacci extension level. 

Source: TradingView

Looking at the order book data for SOL-USD on Binance, we see that there’s bidding interest at $175, $170, $165 and $140. If the price reaches these levels, then traders should be on the lookout for a reversal around these prices. With the price currently at the lower Bollinger Band on the 15-minute timeframe, a short-term bottom may be forming and an upward move could extend as far as $186, the upper Bollinger Band. To the upside, there’s strong selling interest at $192 and $200, which may cut short any bounce. 

Source: TradingLite

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