Some on-chain indicators suggest that Bitcoin (BTC) may be overheating after its rise to the $64,000 price level, suggesting that a significant correction could soon occur.
According to a weekly report from market research firm CryptoQuant, the unrealized profit margins of rising traders and the high cost of opening new long positions in the perpetual futures markets suggest that there is a pause or correction in BTC price.
BTC’s remarkable rally
Since the start of this week, bulls have taken control of the market, driving BTC higher by more than 25%, pushing the digital asset to levels not seen since November 2021. Bitcoin has risen from under $52,000 to over $60,000, trading at $62,600 at the time of writing after a decline from $64,000.
According to CryptoQuant analysts, the price increase is due to high BTC demand from US investors, as evidenced by an increase in the Coinbase premium index to 0.13%, the highest since mid-February.
The high demand for BTC comes from larger companies, whose holdings have increased to 3.975 million BTC, a level last seen in July 2022. The current holdings of such investors, which are companies that have accumulated 1,000 to 10,000 BTC, represent significant growth from the December 2022 low of 3.694 million BTC.
Additionally, new capital inflows into the Bitcoin market, as measured by the realized capitalization of short-term holders, have increased by 10%, compared to 25% in October 2023. New inflows currently represent 35% of the total money invested in the network.
A possible correction
While the demand for BTC is surging, the asset is vulnerable to corrections at any moment. The price of BTC has exceeded $56,000, a previously identified short-term target based on the assessment of network activity. The price represents the red Metcalfe price valuation band, which served as a resistance level in April and November 2021 and April 2022. Analysts said there could be a correction around the price.
Additionally, opening new long positions in the perpetual futures markets has become expensive, and traders' unrealized profit margin is at 32%, inches away from 40%, which is known to trigger a price correction.
Meanwhile, the Miner Profit/Loss Sustainability metric suggests that BTC's price is not overheating as miners are still extremely underpaid, albeit lower than in early January when BTC was worth $38,000.
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