Bitcoin's Rebound May Not Be as Strong as It Looks

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 highlight that while Bitcoin's current drawdown of 54.2% seems less severe compared to past declines of 86.9%, 84.1%, and 77.6%, this comparison is misleading due to reduced volatility. When adjusted for volatility, the current decline is nearly identical to those of previous bear markets, ranging from 1.93 to 2.20 standard deviations.

The report also examines past rebounds, noting that Bitcoin closed at $84,880 on October 1, a 46.9% increase from its July low near $57,800. Historical data shows that rebounds of this magnitude, occurring when prices are still well below prior highs, have often failed. Specifically, out of seven similar signals between 2011 and 2023, four out of five shallow drawdowns (30% to 38% below the high) resulted in further declines within 43 days. The current rebound fits within this shallow range, raising concerns about its sustainability.

One recent example cited by Binance Research involved Bitcoin bottoming near $60,000 in February, rallying 38% by May, only to fall further to $57,800 in June. The analysts identify the persistent high 10-year Treasury yield, despite a drop in October rate-hike odds, as a significant obstacle to Bitcoin's continued rebound, particularly during its historically strong month of October.

A positive development noted in the report is the surge in net equity inflows on Binance, which more than doubled to $163 million last week. Crypto-linked stocks such as Circle (CRCL), MicroStrategy (MSTR), and BitMine (BMNR) together accounted for $71.4 million of this inflow, suggesting trader confidence in Bitcoin's rebound.