Bitcoin Price Risks More Downside Amid Escalating Iran Situation

Key Insights:

• Bitcoin price could be on the verge of sliding below $75,000 as tensions rise around the Iran conflict.
• Bitcoin spot volumes remain heavily subdued, down 81% from October last year.
• BTC funding rates are rising, but how will this impact price action?

Bitcoin price may be at risk of closing May in the red, potentially breaking its monthly recovery attempts. This is despite previous optimism in its performance amid what appeared to be a healthy accumulation earlier this month.

Bitcoin price demand has been cooling off since the second week of May. This paved the way for some profit-taking, which led to sub $80,000 prices. BTC price faced further sell pressure in the last 24 hours.

For context, Bitcoin price exchanged hands at $75,809 at press time. It also risked dropping below $75,000, an outcome that could trigger further price weakness.

Bitcoin price action | Source: TradingView

Iran tensions had a significant impact on BTC crypto price action. In fact, it was one of the most influential macro events swaying the markets. Reports suggest tensions between Iran and the US are on the rise.

Source: Iran Observer

Another wave of escalation in the Middle East, especially one involving Iran, could force investors to take a cautious stance.

Subdued Spot Volumes Explain Why Bitcoin Price Risks Capitulation

Analysts have been keeping an eye on Bitcoin volumes over the last few months to determine whether a recovery bias is at play. This is especially true after the Iran situation cooled, allowing the price to rally above $80,000.

This recovery had analysts curious about whether the rally was smoke and mirrors or would pave the way for more recovery. This warrants a look at key data points to establish a clearer picture of what has been happening.

A recent analysis by CryptoQuant analyst Darkfost noted that Bitcoin spot trading volumes are down to levels last seen in July 2023. This is a critical observation because it indicates that the cryptocurrency failed to generate sufficient volume to sustain a recovery. Otherwise, robust volumes would have likely backed more recovery.

Bitcoin spot volumes fall to drop to 10-month lows | Source: CryptoQuant

In other words, the recent rally earlier this month likely mirrored some accumulation. However, it lacked sufficient volume to really get off the recovery runway. Darkfost also noted that declining volumes may have also been due to cooling sell pressure.

Bitcoin Crypto Sees Surge in Funding Rates

Although Bitcoin crypto spot volumes remained subdued at multi-month lows, it has been experiencing a surge in positive funding rates. This suggests that derivatives traders have been attempting to front-run a BTC price rally.

Bitcoin funding rates turn positive | Source: CryptoQuant

However, surging positive funding rates often lead to liquidations when the price turns bearish, contrary to expectations. Nevertheless, the rising funding rates indicate that traders are embracing more risk.

The rising funding rates underscore real risk for traders executing Bitcoin crypto long positions. That’s especially if the Iran situation turns sour again, it could spark bearish sentiment and liquidations.

It was worth noting that Bitcoin ETF flows just concluded 7 consecutive business days of sustained outflows. An observation that aligns with the ongoing bearish sentiment currently gripping the market.

The current situation underscores a heightened risk of further downside for Bitcoin price. However, it also highlights potential for the price to bounce from the same level that previously acted as a consolidation resistance zone.

Supply and demand characteristics over the next few days will indicate which direction Bitcoin will move. Note that Macro factors are still at play, and the previously failed bullish breakout attempt signals that the bulls are not yet ready to take over.

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