These Metrics Suggest Bitcoin Faces Risk of Further Decline: CryptoQuant

Bitcoin’s latest price correction has the asset hovering around key support levels that could mean more doom for the market. CryptoQuant’s analysts say the cryptocurrency has pierced a key level acting as resistance in this bull cycle, and on-chain metrics are not showing signs of a recovery soon.

According to the weekly report, BTC has fallen below the traders’ realized price lower band for the first time in this bull run. This level has acted as support in this cycle, and if the support fails, the cryptocurrency risks plummeting to the $40,000 level, which is the traders’ realized price minimum band.

However, analysts think there is a low chance that the support would fail because that would imply that the market has entered a bear cycle.

A Risk of Further Correction

Futures market metrics and declining bitcoin demand from traders indicate that BTC could extend this correction and trigger more bloodshed. Trading activity in futures markets has been dominated by selling and shorting transactions, and investors are more willing to open short positions than long positions, as seen in funding rates becoming negative.

Bitcoin traders have been reducing their holdings since late May, and the demand for BTC from this cohort of market participants has continued to decline.

“Traders increased their holdings from October 2023 to early May 2024, when Bitcoin rallied towards the $70K mark. We would need to see a recovery in traders’ Bitcoin demand for price to also recover,” CryptoQuant stated.

No Positive Momentum From Traders

The plunge in bitcoin’s price also dragged traders’ profit margins to the most negative level since November 2022 when the bankrupt crypto exchange FTX collapsed; hence, there is no positive momentum from them. Their on-chain profit margin currently sits at 18%; positive price momentum comes when the profit margin rises above zero and stays higher than its 30-day moving average.

From a valuation perspective, bitcoin’s market value to realized value (MVRV) ratio has plunged below its 365-day moving average. This move is historically aligned with an extension of price decline or the onset of a bear market.

“Investors should be monitoring these types of valuation metrics to assess the possibility of a price bounce (if the MVRV crosses above its 365-day moving average again) or a further correction,” the analysts added.