Bitcoin [BTC] has transitioned from a phase of consolidation and decline to a clear phase of recovery.
Within the last 24 hours, the cryptocurrency surged to a peak of $64,000 before slightly pulling back to trade at $63,786 at the current moment, representing a 2.8% increase.
This uptrend follows the recent decision by the U.S. Federal Reserve to lower interest rates, sparking positive sentiment in the market for risk assets, including Bitcoin.
Could a trend reversal be on the horizon?
While the recent price surge has instilled optimism, analysts are carefully evaluating the underlying factors of Bitcoin to assess the sustainability of this rally.
An analyst from CryptoQuant, known by the pseudonym ‘Darkfost,’ has highlighted a potential warning sign. Darkfost has drawn attention to the Stock-to-Flow (S2F) reversion chart, indicating a possible shift in trend.
Utilized to predict Bitcoin’s price movements, the S2F model compares the influx of new BTC into the market (flow) with the total existing supply (stock).
As per Darkfost, the S2F ratio is currently within a favorable range, signaling an opportunity for buyers as Bitcoin reaches this level and begins its recovery.
However, the analyst cautioned that historical data from September and June 2023 revealed significant price corrections when a similar scenario unfolded.
This begs the question of whether the current uptrend possesses enough momentum to be sustained or if a retracement looms ahead.
Bitcoin’s Strong Foundation
Despite potential concerns about a trend reversal, the core fundamentals of Bitcoin display resilience that could underpin further upward movement.
An important indicator is the resurgence in Bitcoin’s active addresses, reflecting retail interest in the cryptocurrency.
Earlier this month, active Bitcoin addresses dropped to approximately 600,000, data from Glassnode depicts.
Today, however, this figure has risen above 700,000. The uptick in active addresses signifies increased user engagement with the network, indicating heightened demand.
Generally, a surge in retail interest indicates growing confidence in Bitcoin, which can fuel positive price momentum.
Another crucial metric to monitor is Bitcoin’s Spent Output Profit Ratio (SOPR), gauging whether investors are divesting their Bitcoin holdings at a profit or loss.
When the SOPR exceeds 1, it implies that holders are selling for a profit, while a value below 1 suggests sales at a loss. Presently, Bitcoin’s SOPR stands at 1.01, up from 0.994 at the end of August.
This marginal rise indicates that more investors are cashing in on profits from their Bitcoin investments, signaling an optimistic sentiment in the market.
An escalating SOPR often correlates with periods of upward price movement, as investors grow more assured in the market and more comfortable with taking profits without the fear of a sudden downturn.