In recent days, Bitcoin (BTC) has fallen from its new highs to levels not seen in a week, causing millions of dollars in liquidations. Analysts have found that the Coinbase Bitcoin Premium Index sent a bearish signal before BTC plunged.
According to analysis by CryptoQuant, the Coinbase Premium Index fell below 0.05 for a few hours before the price of BTC fell more than 7% to $66,000 on Friday and even further on Sunday.
Coinbase Premium signals a bearish signal
The Coinbase Premium Index is a metric that represents the percentage difference between the Binance (Tether) USDT pair price and the Coinbase Pro USD pair price. A decline in the index suggests that professional traders are less bullish than their retail counterparts, as a larger portion of Coinbase's trading volume comes from the initial cohort of investors.
A negative trend in the Coinbase Premium Index usually signals a short-term correction within a bullish market, increasing the likelihood of a pullback and eastward move in the near term. This also suggests that BTC is unlikely to see an immediate price increase.
The drop in the premium below 0.05 highlighted a phase of weakening buying pressure from US investors. The subsequent price correction was deemed necessary by analysts. On-chain analytics platforms such as CryptoQuant and Bitfinex also warned that BTC is at risk of a price correction as it rises above $73,000.
A necessary correction
CryptoPotato reported that popular technical analyst CryptoCon said that a 20% price correction is necessary for BTC before the asset rises to a new level. As there are warning signs of a decline in BTC, the asset could still lose around 6% of its value in the coming days.
According to historical data from the Directional Movement Index (DMI), an indicator that measures the strength and direction of an asset while reducing potential false signals, CryptoCon expects BTC to reach a cycle high in the next three to nine months following the current cooling period .
Meanwhile, Bitcoin's crash on Friday left over 190,000 traders liquidated with a total value of about $700 million. The largest single position destroyed was more than $13 million on crypto exchange OKX. It may take a while for the leading digital asset to recover as short-term holders' unrealized profit margins reached extremely high levels during BTC's rally above $73,000.
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