As Bitcoin falls below $40,000, the market enters a “wait-and-see” period.

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Traders remain cautious in the aftermath of last week’s catastrophic sell-off, but on-chain data is beginning to indicate increased positive activity as the crypto market awaits the next significant move.

On May 27, price activity for Bitcoin (BTC) and the broader cryptocurrency market was rather muted as jittery traders were wary of what happens next following last week’s market meltdown that saw leveraged traders wiped out as BTC plunged as low as $30,000 before rebounding.

Data from  TradingView shows that while Bitcoin’s price has managed to put in higher highs and higher lows over the past week, bulls continue to face stiff resistance at any meaningful attempt to break above $40,000 as bears defend the psychologically important level.

BTC/USDT 4-hour chart. Source: TradingView

For many traders, the recent correction undoubtedly provoked PTSD-like memories of the 2017 and 2018 market crashes and the accompanying two-year crypto winter, which might explain why the market appears to be hesitant at the present.

Given that many traders are wondering what will happen to Bitcoin’s price next, it’s prudent to analyse the different optimistic and bearish scenarios that might play out, as well as the thoughts of industry professionals.

Traders remain cautious after the recent sell-off

According to David Lifchitz, managing partner and chief investment officer of ExoAlpha, it is critical to examine previous market occurrences and the triggers that led to the current scenario.

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According to Lifchitz, after a “almost uninterrupted bull run from $10,000 in October 2020 to an all-time high for BTC at $65,000 in mid-April 2021,” the market experienced numerous waves of profit-taking before of the “great deleveraging of 2021,” which saw the price of BTC plummet by 54% to $30,000, while Ether (ETH) and altcoins were struck even worse.

According to Lifchitz, the correction was successful in “drastically reducing the amount of leverage that prevailed in the ecosystem,” which is a positive development for the entire market since it would allow it to “to build on a more stable base.”

Estimated leverage ratio for Bitcoin. Source: CryptoQuant

While data reveals that some early dip-buyers were able to pick up tokens at the lows, Lifchitz noted that volumes and futures open interest have remained sluggish, “showing no urgency to reload.”

The monthly options expiry for Bitcoin and Ether is in less than 24 hours, and Lifchitz believes it will prevent “any meaningful move in the very short term.” He also stated that it will be “difficult to persuade burned investors to get back in the game right now” owing to a lack of positive catalysts and the recent reminder that “prices do not always go up.”

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According to Lifchitz, this has caused the market to enter a “wait-and-see phase,” with both trend followers and contrarian investors requiring “some motion, either up or down” before engaging in the market.

Lifchitz said:

“The market definitely needs a catalyst, either upward or downward to move ahead. A too long period without any catalyst could lead to investors fatigue who might decide to cash out and seek other pastures, which would act as gravity on cryptos triggering a downward move. The next few days/weeks will be very telling of what to expect next.”

Bullish indicators abound

While the typical crypto trader is still in a state of limbo, waiting for the next significant market move to signal what BTC will do next, on-chain data shows optimistic actions from larger players who bought during the recent slump.

According to Micah Spruill, managing partner and chief investment officer at S2F Capital, the majority of the recent selling has come from “newer entrants to the market” who have “been selling at a loss and appear to be exhausted at this point.”

According to Spruill, BTC nett transfer data suggests that during the bearish slump between May 17 and 20, “massive amounts of USDC and USDT have been sent to exchanges (to buy BTC, ETH, and so on) and pulled off to long term storage.”

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BTC net transfer volume to/from all exchanges. Source: Glassnode

Further investigation reveals that retail wallets holding between 0.1 and 1 BTC, as well as whale wallets holding between 1,000 and 10,000 BTC, have been stockpiling at these levels in anticipation of a general upward trend.

Spruill also cited entities’ nett growth, which “is recovering back to prior levels” and may indicate that “the bull market is back in full force” if this pattern continues over the next several weeks and the measure recovers its highs.

Entities net growth for Bitcoin. Source: Glassnode

Overall, Spruill anticipates a good increase for BTC in the future, however the timing is uncertain owing to a number of variables.

Spruill said:

“I think there’s a possibility we could spend an extended period of time (months) between the $30,000 to $42,000 level as the market digests recent events and we endure a mid-cycle re-accumulation period. Alternatively, it’s possible we have a COVID-like recovery whereby we see Bitcoin break outside this range soon and recover much faster than others are expecting.”

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