Key Points
- Bitcoin’s recent surge has some analysts predicting a potential market correction.
- Four factors, including investor greed and overvaluation, could contribute to a sharp Bitcoin decline.
Bitcoin’s value has increased by 34.39% in the last month, reaching an all-time high of $93,483 from a local low of $66,798. Despite the market’s optimism for Bitcoin (BTC) to reach $100,000, some analysts predict a steep correction.
Potential Reasons for a Bitcoin Correction
Analyst Ali Martinez suggests four possible reasons for a significant Bitcoin correction. First, Bitcoin’s crypto enthusiasts are displaying extreme greed, with the greed index at 90%. This is evident in the spike of Google search interest for BTC.
Martinez notes that while retail interest in Bitcoin could signal further capital inflow, spikes in search trends often align with price declines. For instance, in 2021, significant surges in Bitcoin search interest resulted in corrections of 30%, 26%, 27%, and 50%.
Secondly, savvy Bitcoin investors have realized $5.42 billion in profits, leading to an increase in the sell-side risk ratio. This suggests that investors are selling to maximize profits.
Thirdly, from a technical perspective, the TD sequential has presented a sell signal on daily charts. This indicates that the uptrend is exhausted and a trend reversal could follow, particularly as many investors are taking profits.
Finally, the RSI indicates that Bitcoin is currently in overbought territory at 75.91. When the RSI is overbought, it implies that an asset could be overvalued and that buyer momentum is waning.
According to Martinez, if a price correction occurs, Bitcoin will find support walls around $85800, $83250, and $75520- to a low of $72,880.
What the Charts Indicate
While Martinez’s analysis provides a cautionary tale for investors, it’s important to consider other market indicators. For instance, Bitcoin’s MVRV ratio has seen a sustained uptrend to hit a high of 2.5, suggesting overbought conditions.
Historically, high MVRV values have been followed by price pullbacks as early investors sell to secure profits. Moreover, Bitcoin’s NVT ratio has surged from a low of 14 to 44, indicating that while the market cap is increasing, transaction activity is not keeping pace.
This suggests a speculative price rise without corresponding growth in the network’s value, implying that Bitcoin is potentially overvalued as prices outpace its on-chain activity.
In simpler terms, Bitcoin prices could decrease to meet its actual market demand. If it declines, it will find the next support around $87140. However, if the $9100 support holds, Bitcoin could continue with the uptrend towards $100k.