Bullish divergence on the price chart, September rate cut prospects and increasing M2 supply are some catalysts that could resume the Bitcoin bull market cycle.

Despite Bitcoin price volatility and five-month lows, several key indicators suggest that the bulls may still have the upper hand, hinting at a potential resurgence in the BTC price trajectory.

Bullish divergence boosts BTC rebound prospects faced a turbulent start to July, plummeting over 10.50% to hover around $57,000 as of July 7. At its lowest point, BTC touched $53,550, with its losses led by fears of a market dump due to Mt. Gox’s ongoing reimbursement of over 140,000 BTC to its clients and the German government’s BTC liquidations.

The latest Bitcoin price decline was accompanied by a growing divergence between falling prices and the rising relative strength index (RSI). This divergence typically indicates that the selling pressure is weakening, even though the price continues to slump. 

BTC/USD daily price chart. Source: TradingView

In technical analysis, this scenario often suggests a potential reversal or a slowdown in the current downtrend, hinting that Bitcoin might soon experience a rebound as the market sentiment shifts back toward bullishness.

Bullish hammer, oversold RSI

Two other classic technical indicators support the bullish reversal scenario. First, Bitcoin formed a bullish hammer candlestick pattern on July 5, characterized by a small body at the upper end of the daily candle, with a long lower shadow and little upper shadow. A similar situation was seen in May.

Secondly, Bitcoin’s daily RSI reading is hovering near its oversold threshold of 30, which often precedes a consolidation or recovery period. Analyst Jacob Canfield predicts this indicator could signal a rebound, with BTC potentially returning to its “former range high” of over $70,000.

Source: Jacob Canfield

Wall Street bets on September rate cut rise

Bitcoin’s ability to resume its bull run in the coming weeks rises further due to rising interest rate probabilities in September.

As of July 7, Wall Street traders saw a 72% possibility of the United States Federal Reserve cutting interest rates by 25 basis points, according to data collected by CME. A month ago, the probability of the same was 46.60%.

Target rate probabilities for the Sept. 18, 2024 Fed meeting. Source: CME

Expectations for lower interest rates have risen due to a slowdown in hiring in the United States. 

When the job market weakens, the Fed often considers cutting interest rates to stimulate economic activity. Lower interest rates are generally bullish for Bitcoin and other riskier assets because they make traditional safe investments like US Treasury notes less attractive.

Bitcoin ETF investors return after July decline

Another bullish indicator for the BTC market is the resumption of inflows into the US-based spot Bitcoin exchange-traded funds (ETF) after two days of consecutive outflows.

On July 5, when the US reported weak unemployment data, these funds collectively attracted $143.10 million worth of BTC, according to data from Farside Investors, indicating a rising risk sentiment among Wall Street investors.

Spot Bitcoin ETF cumulative inflows. Source: Farside Investors

The Fidelity Wise Origin Bitcoin Fund (FBTC) spearheaded the inflows with $117 million. The Bitwise Bitcoin ETF (BITB) saw a net inflow of $30.2 million, and the ARK 21Shares Bitcoin ETF (ARKB), along with the VanEck Bitcoin Trust (HODL), recorded inflows of $11.3 million and $12.8 million, respectively.

In contrast, the Grayscale Bitcoin Trust (GBTC) experienced a net outflow of $28.6 million.

US money supply is expanding again

More upside cues for Bitcoin come from a recent rise in the US M2 supply, which measures the money supply that includes cash, checking deposits and easily convertible near-money, such as savings deposits, money market securities and other time deposits.

As of May 2024, the M2 money supply increased by approximately 0.82% year-over-year, reducing its aggregate drop from the peak decline of 4.74% in October 2023 to around 3.50%.

US M2 supply chart. Source: FRED

M2 supply growth is bullish for Bitcoin because it increases liquidity in the economy. More money in circulation leads to higher investments in riskier assets like Bitcoin, as traditional investments like savings and bonds offer lower returns.

Bitcoin miner capitulation hints at BTC price bottom

Bitcoin miner capitulation metrics are nearing levels seen during the market bottom following the FTX crash in late 2022, indicating a potential bottom for BTC. Miner capitulation occurs when miners reduce operations or sell part of their mined Bitcoin and reserves to stay afloat, earn yield or hedge against Bitcoin exposure.

Market analysts have highlighted several signs of capitulation over the past month, during which Bitcoin’s price fell from $68,791 to as low as $53,550. One notable sign is a significant decline in Bitcoin’s hashrate — the total computational power securing the Bitcoin network. 

The hashrate has dropped by 7.7%, reaching a four-month low of 576 exahashes per second after hitting a record high on April 27. This decline suggests that some miners are scaling back operations, reflecting the financial stress within the mining community post-halving.

Bitcoin network true hashrate drawdown. Source: CryptoQuant

As weaker miners exit the market or scale back operations, the more competitive miners will see bigger profits, potentially stabilizing their operations and reducing the need to sell BTC. These metrics signal that the Bitcoin market might be nearing its bottom, similar to previous cycles where miner sell-offs and operational reductions preceded market recoveries.