Bitcoin [BTC] Faces Capitulation Risk as Recession Fears Mount, But On-Chain Metrics Flash Bullish Signals

Bitcoin [BTC] is at the risk of bearish capitulation as investors, especially in the retail segment, lose confidence in the bulls.

Bitcoin [BTC] investors are losing hope in the bulls, especially in the retail segment, which could lead to a bearish capitulation. Its recent bullish attempt formed a lower high, continuing a trend observed since BTC's March peak. Each bullish attempt after BTC's all-time high in March has resulted in lower highs, indicating weaker upside momentum.

This is largely contributing to the decreasing confidence in BTC's ability to reach new highs. The latest attempt to cross above $60,000 faced increasing sell pressure, ultimately leading to a further decline in market sentiment. The Bitcoin Fear and Greed Index dropped from 39 a week ago to 29 at press time.

The increasing fear also aligns with growing concerns about the state of the global economy, particularly as fears of a recession gripped the world. These fears threatened to destabilize the global investment landscape.

Investors usually become risk-averse in such scenarios, which could lead to a liquidity outflow from risk-on assets like Bitcoin. On the other hand, Bitcoin's 2022 crash was largely fueled by liquidity drying up as governments raised interest rates. Recent developments suggested that rate cuts could favor a bullish outcome.

On-chain data also supported these expectations. Despite the recent bearish outcome, BTC exchange reserves continued to fall, indicating strong long-term demand and suggesting that the recent market performance was largely a result of short-term volatility.

The declining exchange reserves were quite unusual in a time when the market was becoming more fearful. This suggested that HODLers were moving BTC from exchanges into their private wallets.

Exchange flow data corroborated the above point. Recent exchange outflows vastly outpaced inflows. For instance, the last spike in exchange flows was on 27 August, with outflows peaking at 80,740 BTC. In the same trading session, inflows peaked at 36,071 BTC.

A similar story unfolded in the BTC exchange flows over the last 24 hours, with exchange outflows being higher at 21,977 BTC compared to 6151 BTC exchange inflows.

This signaled a strong demand every time BTC dipped below the $60,000 mark. The prevailing demand does not negate the fact that Bitcoin has been hitting lower highs. There is a significant risk that the macro-trend could weaken closer to the $50,000 range and possibly below, especially if a strong capitulation event leads to big inflows in exchange reserves.

On the other hand, the current data suggests that a supply shock is still in play and could contribute to higher prices down the road.

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