With blockchain data showing bearish market sentiment is weakening, oversold bitcoin may succeed in establishing a foothold above $40,000. The cryptocurrency crossed above the psychological hurdle soon before press time, having put in lows near $37,000 during the Asian hours.
The seven-day average of net bitcoin inflows to exchanges turned negative for the first time since April 22, data provided by Glassnode show.
That means coins are leaving exchanges after a gap of four weeks, a sign of investors are starting to take direct custody of their holdings, possibly anticipating a price increase.
The fewer coins available for sale on exchanges, the better the chance of the market going up.
Investors typically transfer coins to exchanges when they want to sell their holdings, so consistent net inflows represent a bearish mood, with outflows signaling bullish sentiment.
The seven-day average of net flows turned positive on April 22, and rose to a 14-month high of 10,628 BTC on May 17, a sign some holders may have been panicking.
The bitcoin sell-off gathered pace, with prices dropping to lows near $30,000 on May 17. The decline marked a slump of more than 50% from the record-high $64,801 reached on April 1.
The panic looks to have subsided this week, with the balance held on exchanges dropping by 7,597 BTC to 2.53 million.
Further outflows from exchanges may be needed to restore battered market confidence and put the cryptocurrency back on a bullish path.
Consistent outflows accompanied bitcoin's 13-month surge from $5,000 to over $60,000, with the balance held in exchange wallets falling by more than 615,000 BTC from March 2020 to April 2021.