Bitcoin Rebound Weakens as Historical Patterns Signal Caution

Bitcoin’s recent rebound may not be as robust as it appears, according to a new report from Binance Research. The analysts, Kim Lim, Ken Lam, and Kexin Liu, argue that while Bitcoin’s current drawdown of 54.2% seems less severe compared to previous declines of 86.9%, 84.1%, and 77.6%, the comparison is misleading due to reduced volatility. Adjusting for volatility, Bitcoin’s current decline aligns closely with historical bear market drops, suggesting that the asset is not falling less but rather swinging less overall.

The report also highlights that past rebounds of similar magnitude, with prices still below prior highs, have often failed. Between 2011 and 2023, Bitcoin experienced seven such rebounds. When the drawdown was deep (67% to 76% below the high), the rebounds held and led to new highs. However, in shallower drawdowns (30% to 38% below the high), most rebounds failed, breaking back below the prior low within 43 days. The current rebound, with Bitcoin 35.6% below its high, falls into the shallow range where most past bounces failed.

One recent example cited by Binance Research is Bitcoin’s rally from near $60,000 in February to a 38% gain by May, only to fall further to $57,800 in June. The analysts identify the gap between falling October rate-hike odds and high 10-year Treasury yields as a key obstacle for Bitcoin’s rebound to continue, especially considering October’s historical strength for the cryptocurrency.

Despite these cautionary signs, there is a positive development in crypto equity flows. Net equity inflows on Binance more than doubled to $163 million last week, the largest weekly total since early July. Crypto-linked stocks such as Circle (NYSE:CRCL), Strategy (NASDAQ:MSTR), and BitMine (NYSE:BMNR) together pulled in $71.4 million, suggesting traders are positioning for Bitcoin’s rebound to continue.