An in-depth analysis of Bitcoin conducted by the Combined Books has unveiled valuable insights into the order-book depth within the 1-5% range.
Significantly, each surge in price aligned with instances where order-book depth fell below the 135 million mark, historically indicating a potential market bottom.
These occurrences were particularly noticeable around the 13th and 21st of January, showcasing robust support levels for Bitcoin and hinting at a reduced selling pressure, setting the stage for a potential bullish reversal.
By monitoring these highlighted periods, traders can better assess shifts in market sentiment and liquidity limitations, often anticipating upward trends ahead of time.
Notably, following a substantial drop in order book depth on the 19th of January, a subsequent price increase ensued, affirming the notion that shallow order books might signify the depletion of selling pressure.
A consistent low order book depth could indicate a prolonged bullish trend, while a sudden uptick might indicate forthcoming volatility or price adjustments.
Why Taking the Risk with BTC Could Still Make Sense
Further examination revealed that the modest movement mentioned earlier caused Bitcoin’s Estimated Leverage Ratio (ELR) to surge, reflecting retail investors’ confidence and willingness to embrace greater risks.
This raised the question of whether the Bitcoin correction had concluded, or if the market was merely ensnaring leveraged traders betting on long positions.
The increase in leverage could also pave the way for sharp declines, as witnessed in 2022 when the ELR declined, hinting at reduced risk appetite during the market downturn.
This underscored the role of leverage in amplifying market fluctuations, both in upward and downward directions.
Despite these cycles of retail investors engaging in leveraged positions, it remains compelling as investors can leverage market upswings, pointing to a continuous, albeit cautious, window of opportunity for risk-taking.
Examining market cycles revealed significant movements coinciding with Bitcoin surpassing 2.4 times its 200-day SMA. This figure currently stands at $184,600, yet to be reached.
Such occurrences bode well for leveraged traders.
Historically, whenever BTC exceeded this threshold, it marked a shift in cycle. During the bullish trend of 2021, Bitcoin peaked above $60K, aligning with its breach of the 2.4x multiplier of its 200-day SMA before retracing.
These instances signaled heightened enthusiasm, increased trading volumes, but also escalated risks as Bitcoin adjusted to new levels.
As Bitcoin edges closer to these levels again, historical trends suggest the potential for ongoing upward momentum. If Bitcoin sustains its current trajectory, it could head towards the $184,600 threshold, delivering gains for leveraged retail investors.
On the other hand, a failure to maintain momentum could point towards a slowdown, potentially leading to a consolidation phase or a decline, causing losses for leveraged retail investors.