Bitcoin Faces Challenges in Q2, Price Correction or Deeper Decline?
After a promising start to 2024, the cryptocurrency market has faced headwinds in the second quarter. Bitcoin (BTC), the leading cryptocurrency, has struggled to hold above $60,000, raising concerns among investors. Ethereum (ETH), the second-largest cryptocurrency, has also faced losses, albeit not as severe as BTC.
Factors Contributing to the Decline
Analysts attribute the second-quarter downturn to several factors:
1. ETF Enthusiasm Wanes:
The much-anticipated approval of spot bitcoin ETFs initially buoyed the market. However, as inflows into these funds have slowed and even reversed on occasion, the positive catalyst has diminished.
2. Interest Rate Hopes Fade:
The market initially anticipated a series of interest rate cuts in 2024. However, persistent inflation has dashed those hopes, weakening the appeal of riskier assets like cryptocurrencies.
3. Bearish Signals and Trend Following:
According to Markus Thielen of 10X Research, bitcoin entered a downtrend on June 20. Trend-following funds may amplify the decline by taking short positions.
4. Political Uncertainty:
Thielen believes that President Biden’s recent performance in the presidential debates has increased the likelihood of a more formidable Democratic nominee in the November election, which could bring uncertainty to the market.
5. Historical Weakness in Q3:
Historically, the third quarter has been weak for bitcoin, with an average return of only 5% over the past 13 years. This contrasts with strong returns in Q2 and Q4.
Potential Price Target
Thielen has identified several factors that could lead to a further decline in bitcoin’s price in the near term. These include:
- Technical analysis: Bitcoin is trading below its 200-day moving average, a key technical indicator.
- Historically weak Q3: The average return in Q3 is only 5%.
- Trend-following funds: Short positions by these funds could accelerate the decline.
Based on these factors, Thielen believes that bitcoin could drop to $55,000 in the near term. However, he also notes that a catalyst could arise to change this outlook.
Divya 
Mehek