Bitcoin commenced the second week of September with a surge in bullish momentum, defying pessimistic forecasts by closing above $57K. However, this upsurge was short-lived, as BTC is currently being traded at $56,407 at the time of this composition.
Interestingly, the decline followed an increase in long positions, sparking speculations on a possible frenzy driven by short squeezes.
As expected, long positions showed better performance than shorts, exhibiting confidence in an imminent reversal.
Furthermore, the uptick in Futures traders adopting long positions coincided with the surge in prices. For instance, during the rally in mid-August to $64K, long positions consistently dominated, keeping short positions at bay.
However, since then, the ratio has exhibited more volatility, leading to price stagnation below $60K. The $56K mark now holds significant importance. In the event of intensified shorting activities by the market, the likelihood of a bounce-back might diminish.
Pure confidence from long-term holders might not be enough
The reserve risk metric indicated that long-term holders have high confidence compared to Bitcoin’s current price. Investing during periods within the green zone has historically resulted in substantial returns.
Furthermore, when confidence among holders is high while the price remains low, the risk/reward ratio becomes appealing for investing in Bitcoin at that juncture.
To simplify, investors monitor the activity of long-term holders to assess market sentiment. Positive sentiment could potentially attract more participants into the market.
Nevertheless, the lack of confidence among short-term holders, highlighted by an $850 million sell-off in BTC, reinforces the analogy of a short squeeze in the crypto market.
In summary, as the market transitions into a state of heightened fear, where might the price eventually stabilize?
Pinpointing the Price Bottom of BTC
As emphasized before, maintaining the $56K threshold is pivotal. Careful observation of this level will provide insights into the next move of BTC.
An MVRV ratio of 1.8 indicates that Bitcoin’s market value is 1.8 times its realized value, suggesting profits for the average holder. If materialized, this scenario could lead to selling pressures.
Consequently, an outright market peak is improbable unless a Fed rate reduction weakens the Dollar index, thereby fueling a strong bull momentum.
However, a price bottom, which happens when the market value dips below the realized value, might signal a point of capitulation and pave the way for the subsequent market cycle.
According to CryptoCrypto, BTC could potentially retreat to around $40K before a probable reversal, with a corrective downturn required for a recovery to materialize.
In the absence of this correction, the consolidation phase may persist.