Is Bitcoin Nearing its Price Bottom? Insights from the Coinbase Premium Index
Bitcoin’s value on Coinbase has dropped to negative levels rarely seen, according to data from CryptoQuant. Similar occurrences in November 2022 and August 2023 hinted at upcoming local price bottoms followed by subsequent upswings.
Trading at a significant markdown on Coinbase, Bitcoin (BTC) could be signaling a potential price floor, suggesting an impending upward trend for the leading cryptocurrency.
David Lawant, FalconX’s head of research, referenced the adage “Always darkest before the dawn,” noting that the last time the Coinbase premium dipped this low preceded a substantial rally from October ’23 to March ’24.
The “Coinbase Premium Index” gauges the price variance for bitcoin on Coinbase, a platform commonly used by U.S. users and institutional investors, compared to Binance, a prominent exchange favored by retail traders.
Data from CryptoQuant reveals that the metric has been negative for an extended period, resembling the market stagnation witnessed in August and September of the previous year. On a recent Friday, the index plummeted to nearly -0.19, marking its lowest daily reading since the November 2022 collapse of FTX.
Unfavorable readings indicate diminished demand and selling pressure from U.S. investors. Bitcoin has been trading within a consolidated range since reaching all-time highs in March, with concerns arising over outflows from U.S.-listed spot BTC exchange-traded funds settled on Coinbase. Additionally, the U.S. government’s sale of seized assets through Coinbase may have contributed to the price disparity on the platform.
Historically, deeply negative Coinbase Premium levels have coincided with local price bottoms, followed by substantial price surges in the subsequent months. For instance, the November 2022 reading aligned with BTC’s bear market low below $16,000, leading to a subsequent surge to nearly $25,000 by February, representing a more than 50% increase.
In August 2023, a low premium reading occurred just before Bitcoin hit a local bottom near $25,000. Subsequently, BTC traded within a range until October before nearly doubling in price by January, driven by anticipation surrounding forthcoming U.S. bitcoin ETFs.
Lawant highlighted the Coinbase premium as a reliable indicator of market trends, emphasizing the U.S. market’s significant influence on price formation. With upcoming U.S.-centric catalysts such as ETF flows and the presidential election, Lawant anticipates this trend to persist.
Looking ahead, Lawant predicted a potentially volatile yet promising 6-12 months for the market.
