After a recent low at $66,798, Bitcoin [BTC] has climbed to a new all-time high of $93,483, sparking optimism in the market about a potential increase to $100k. However, some analysts, including Ali Martinez, have expressed concerns about four factors that could lead to a sharp correction for BTC.
Factors Contributing to a Possible Bitcoin Correction
In a detailed analysis, Martinez highlighted four key reasons behind the potential downward movement of Bitcoin. Firstly, the greed index for Bitcoin’s enthusiasts has reached an extreme level of 90%, indicating excessive greed in the market.
This heightened greed is evident in the increased Google search interest for BTC, particularly among retail investors. While retail interest usually signifies more capital inflow, historical data shows that surges in search trends often coincide with price corrections. For instance, the top spikes in search interest for Bitcoin in 2021 led to corrections of 30%, 26%, 27%, and 50%.
The second reason revolves around savvy BTC investors who have cashed in $5.42 billion in profits. This has resulted in a surge in the sell-side risk ratio, indicating that investors are selling to lock in gains.
From a technical standpoint, the TD sequential has issued a sell signal on daily charts, signaling an imminent trend reversal as the uptrend loses steam with many investors capitalizing on profits.
The final reason to consider is Bitcoin’s Relative Strength Index (RSI) currently standing at 75.91, indicating an overbought condition. An asset being in the overbought territory suggests potential overvaluation and waning buyer momentum.
In anticipation of a price correction, BTC is expected to encounter support levels at $85,800, $83,250, and down to $75,520 towards a low of $72,880.
Analyzing Bitcoin Charts
While the warnings by Martinez signal caution for investors, it is crucial to explore additional market indicators to gain further insights.
For instance, Bitcoin’s MVRV ratio has shown a consistent uptrend reaching a peak of 2.5, indicating potential overbought conditions when the ratio becomes excessively high.
Historically, elevated MVRV values have typically preceded price pullbacks as early investors tend to sell off to realize profits.
Furthermore, Bitcoin’s NVT ratio has risen from 14 to 44, suggesting a disconnect between the rising market cap and the transaction activity. This imbalance implies a speculative price surge without commensurate growth in the network’s utility, hinting at a possible overvaluation as prices outpace on-chain activity.
In essence, Bitcoin prices might readjust to align with genuine market demand. If a decline occurs, the next support levels are anticipated around $87,140. However, if the $91,000 support holds, Bitcoin could resume its upward trajectory towards $100k.