Bitcoin price sell-off continues, but data highlights the need for a healthy correction

Bitcoin saw a big sell-off at the start of the week, resulting in a 5% drop in price during the last 24 hours, finishing at $41,645 on December 11. Despite this sharp drop, Bitcoin’s recovery is seen in on-chain and technical indicators, with the cryptocurrency currently valued at $42,882. Bulls in the market are working hard to recover from the setback and push the price back above $44,000, indicating a possible and much-needed cooling-off phase for the cryptocurrency.

On-chain data suggests that Bitcoin’s price is currently overextended.

Bitcoin dropped significantly, by 7.2%, to a low of $40,300 on Coinbase. Analysts, like Julio Moreno, the head of research at the on-chain analytics company CryptoQuant, got talking about this dramatic drop. The main cryptocurrency’s price has just surged above the psychologically critical $40,000 mark, which has Moreno worried that it is “overheating”. A deeper analysis of market dynamics was warranted by the value decline, which also made the durability of the preceding upward trend questionable.

Some metrics are flagging #Bitcoin price is overheating after the recent rally above $40K (red areas).

1. The Bull-Bear Market Cycle Indicator: overheated bull phase for the first time since July.

2. The miner profit/loss sustainability: block reward growing much faster than… pic.twitter.com/irpVvBSV3G

— Julio Moreno (@jjcmoreno) December 7, 2023

Lookintobitcoin, an on-chain data analysis service, has also highlighted fatigue among bullish market participants. According to the Crosby Ratio, Bitcoin’s price has reached its golden ratio multiplier near-term target, as stated in its December 2023 report. This statistic shows that Bitcoin’s near-term price is at “over-extended levels,” indicating the need for a correction or, at the very least, a pause in present momentum.

The golden ratio multiplier is a tool that delves into Bitcoin’s adoption curve and market cycles, providing insight into how the cryptocurrency’s price may behave in the medium to long term. This analysis emphasizes the significance of examining larger market patterns when determining Bitcoin’s present valuation.

 In simple terms, once buyer exhaustion set in, Bitcoin hit overbought levels above $40,000. It is worth noting that the main cryptocurrency’s relative strength indicator (RSI) has been significantly overbought since December 5. 

 This is an early indication that purchasing pressure may eventually weaken, as traders may choose to book gains as the rally loses speed.

Bitcoin price faces stiff resistance around $44,000

The recent drop in the Bitcoin market results from the barrier at the $44,000 supply zone, which is exerting a stifling effect. Analyzing Bitcoin’s adoption curve and market cycles, the Lookintobitcoin golden ratio multiplier indicator reveals that the 1.6 multiplier target has been attained at around $44,000. It’s crucial to note that BTC has remained trapped in this range for the past week, struggling to convincingly break above it.

 Put in another context, this supply congestion area is strongly rejecting the price of Bitcoin, making it a difficult obstacle for bulls to overcome.

On-chain data from IntoTheBlock’s “in/out of the money around a price” (IOMAP) model highlights how stiff the barrier is at $44,000 (see below). The IOMAP chart indicates that this level is in the $43,346–$44,627 price range, where 1.43 million addresses have previously purchased about 585.77 BTC.

 Any effort to raise the price over this level would be greeted with strong selling from this group of sellers, who may be looking to break even.

Is Bitcoin able to maintain its upward trend?

 Although the current correction is viewed as a necessary adjustment to the broader bullish trend, it may be a bear trap. Santiment data shows that exchange outflows of Bitcoin are increasing; the current balance of -347 suggests that more Bitcoin is leaving exchanges than is entering them.

 The negative figure shows that outflows of Bitcoin are greater than inflows, suggesting that investors would rather hold than sell—a bullish sign. This suggests that the recent decline to $40,000 may have been a transitory correction, giving investors a chance to increase their holdings before the rising trend picks back up. Technically speaking, Bitcoin continues to rise and is above important moving averages. Notably, these overlay indications provide strong amounts of negative support.

The Moving Average Convergence Divergence (MACD) indicator stays positive, with readings above the neutral line. Since crossing over on October 16, the MACD line (blue) has remained above the signal line (orange). This combination suggests that market circumstances continue to favour an upward trend, suggesting a positive market outlook.

As a result, the price of Bitcoin is projected to rise further, with buyers aiming for a break of over $44,000. A clear break above this level could lead to Bitcoin reaching $50,000, especially as significant events such as the United States Securities and Exchange Commission’s decision on spot Bitcoin exchange-traded fund applications in the New Year and the next Bitcoin halving event in the spring of 2024 approach.