Bitcoin [BTC] has been attempting mid-week bounces for the last few weeks to break free of the ongoing bearish grip. The latest observations in the market suggest that a similar outcome might occur this week and here’s why.

According to a Cryptoquant analysis conducted by MAC_D, Bitcoin reserves in the spot market dropped in the last two days. In contrast, Bitcoin reserves in derivatives exchanges increased during the same period.

Source: CryptoQuant

A decline in the spot BTC exchange reserves was a good sign that people were buying the dip. Such was the case when BTC dropped below $19,000. The uptick in BTC exchange reserves in the derivatives market may indicate an increase in demand for derivatives trading. It may not directly indicate that there was incoming sell pressure but might be a sign of more volatility ahead.

One of the reasons for this expectation was that many derivatives traders exercise leveraged trading. As a consequence, the price stood sensitive when there were a high number of leveraged positions. Both the open interest and estimated leverage ratio were up, confirming significant activity in the derivatives market.

Whales have been trimming their balances for most of September. This was evident by the drop in the number of BTC addresses holding more than 1 BTC in the last four weeks.

Source: Glassnode

Addresses holding more than 1 BTC at press time were at their lowest level in the last four weeks. Investors should keep a close eye on this metric because a shift would confirm strong accumulation.

Bitcoin’s R-HODL ratio improved in the last 24 hours despite the lack of demand from whales. This reflected the increased activity in the derivatives market and could be considered as another indicator of incoming short-term bullishness.

Although these indicators point towards a potential bullish relief, there still was a possibility of more downside. BTC still had some room to push lower before brushing with its short-term support. At press time, BTC wasn’t near the oversold zone.

Source: TradingView

Another bearish move will likely result in a support retest near or below the $18,000 price level. On the other hand, there was still some Bitcoin’s price-RSI divergence which may have acted in favor to the bulls. The price will soon give way to the bulls as relative strength increases.

What to expect

Another short-lived rally is the likeliest possible outcome especially if the whales remain on the sidelines. Investors should thus keep an eye on whale activity because that will determine the strength of the resulting upside.