Some on-chain indicators are flashing signs that Bitcoin (BTC) may be overheating following its rally to the $64,000 price mark, indicating a significant correction could occur soon.
According to a weekly report from market intelligence firm CryptoQuant, the rising traders’ unrealized profit margin and the high cost of opening new long positions in perpetual futures markets suggest the emergence of a pause or correction in BTC’s price.
BTC’s Remarkable Rally
Since the beginning of this week, the bulls have taken charge of the market and driven BTC up by more than 25%, pushing the digital asset to levels not seen since November 2021. Bitcoin has rallied from under $52,000, crossed $60,000, and was trading at $62,600 at writing time after a pullback from $64,000.
CryptoQuant analysts say the price increase is driven by high BTC demand from U.S. investors, evident in a rise in the Coinbase premium index to 0.13%, the highest since mid-February.
The high demand for BTC is coming from larger entities, whose holdings have increased to 3.975 million BTC, a level last seen in July 2022. The current holdings of such investors, which are entities who have accumulated 1,000 to 10,000 BTC, represent a significant growth from December 2022 lows of 3.694 million BTC.
Additionally, fresh capital inflow into the Bitcoin market, measured by the short-term holder realized capitalization, has increased by 10% from the 25% recorded in October 2023. The fresh inflows currently represent 35% of the total money invested in the network.
A Possible Correction
While demand for BTC soars, the asset is prone to correction any moment from now. BTC’s price has surpassed $56,000, a previously identified short-term target based on network activity valuation. The price represents the red Metcalfe Price Valuation Band, which served as a resistance level in April and November 2021 and April 2022. Analysts said a correction could occur around the price.
On top of that, opening new long positions in the perpetual futures markets has become expensive, and traders’ unrealized profit margin is at 32%, a few inches away from 40%, which is known to trigger a price correction.
Meanwhile, the Miner Profit/Loss Sustainability metric suggests that BTC’s price is not overheated as miners are still extremely underpaid, although at a rate lower than in early January when BTC was worth $38,000.
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