The price of Bitcoin (BTC) started the second week of September with a strong uptrend, defying bearish predictions and closing above $57K. However, the rally was short-lived, and BTC is currently trading at $56,407 at the time of this writing.
Interestingly, this drop followed a surge in long positions, sparking speculation of a potential short squeeze-fueled excitement in the market.
As expected, long positions surpassed short positions, showing confidence in a forthcoming trend reversal.
In addition, the increase in the number of Futures traders going long has coincided with the rise in price. For example, during the mid-August surge to $64K, long positions consistently dominated, preventing shorts from gaining significant ground.
However, in recent times, this ratio has become more unpredictable, causing the price to fluctuate below $60K. The $56K support level has now become crucial, and a surge in short-selling activities could weaken the chances of a rebound.
Long-Term Holder Sentiment Might Not Be Enough
An analysis of reserve risk suggested that long-term holders are optimistic concerning Bitcoin’s price. Historically, investing during periods of favorable conditions has resulted in substantial returns.
Furthermore, when sentiment is optimistic and the price is low, the risk/reward ratio becomes attractive for investing in Bitcoin at that juncture.
In essence, investors track the activity of long-term holders to assess market sentiment, which, if positive, could attract more participants.
However, despite this positivity, the lack of confidence among short-term holders, exemplified by the $850 million BTC sell-off, supports the theory of a potential short squeeze in the market.
In conclusion, with the market sentiment leaning towards high levels of fear, where might the price stabilize?
Determining the Price Bottom for BTC
As emphasized earlier, maintaining the $56K support level is critical. A close watch on this level will offer insights into the future direction of BTC’s price.
An MVRV ratio of 1.8 indicates that Bitcoin’s market value is 1.8 times its realized value, hinting at profits for the average holder. If this materializes, it could lead to selling pressure in the market.
Therefore, a market peak seems improbable unless a cut in the Fed rate weakens the Dollar index, initiating a strong bullish momentum.
Nevertheless, a price bottom, characterized by the market value dropping below the realized value, could indicate a moment of surrender and pave the way for the next market cycle.
According to industry experts, BTC might dip to approximately $40K before a potential reversal, with a bearish retracement necessary for a recovery to occur. Otherwise, the market could continue to consolidate.