A fall in the price of Bitcoin (BTC) is likely, based on various on-chain data, namely the Spent Output Profit Ratio (SOPR) indicator, stablecoin entries, sales orders stacked at $ 19,000 and the Index of Crypto Fear and Greed. However, the question remains as to when this correction would take place.
Profit retraction retraction possible with lower buying pressure
The SOPR indicator essentially measures how much profit Bitcoin holders are currently making. When the SOPR is high, BTC is at risk of a retraction in the withdrawal of profits, since traders tend to sell when they are profiting.
Meanwhile, stablecoin inflows show how many stablecoins, such as the USDT Tether, are flowing into exchanges. When the entry of stablecoins increases, it usually means that buyer demand is increasing. On the other hand, selling pressure tends to increase when BTC reserves exceed the inflow of stablecoins.
In the past few days, the SOPR indicator has reached a level that previously caused the price of Bitcoin to be corrected, as in late 2018 and summer 2019.
On November 20, Rafael Schultz-Kraft, technical director at Glassnode, observed:
“Adjusted SOPR (per hour, 7d MM) was not so high since July 2019. Correction coming?”
This trend may become worrying if Bitcoin’s momentum wanes. Renato Shirakashi, the creator of the SOPR indicator, said that the work of Nobel Prize winner Daniel Kahneman shows that investors feel comfortable selling when they profit.
Therefore, if Bitcoin becomes stagnant or consolidates in the short term below the $ 19,000 resistance, a small setback may arise. Shirakashi wrote:
“People, in general, are much more comfortable selling when they are making a profit. In a bull market, when the SOPR falls below 1, people sell at a loss and are therefore reluctant to do so. This pushes the supply down significantly, which in turn presses the price up, which increases. “
The increase in the ownership of stablecoins on CryptoQuant exchanges coincides with the increase in SOPR. The proportion of stablecoins is the Bitcoin reserve on exchanges divided by the reserves of stablecoins. When it increases, it shows that the potential selling pressure is increasing.
Thus, CryptoQuant’s CEO, Ki Young Ju, expects a correction in the short term, although not a major correction. Him noticed:
“BTC’s potential selling pressure is rising, but it is still low. We’ll see some correction in a few days, but it won’t be big. Long-term high. “
The $ 19,000 is on track for a new historic record
The order books on exchanges also show that the $ 19,000 level has become an important area of resistance. There are significant sales orders on Bitfinex, Bitstamp, Binance and Coinbase close to $ 19,000, which could prevent a bullish from continuing.
– Byzantine General (@ByzGeneral) November 21, 2020
Okay, 19000 is half stacked with orders. @CryptoCobain will have to pull a lot of money. pic.twitter.com/KnNSzYYRnL
Another possible factor that could trigger a short-term downturn is the Crypto Fear and Greed Index. The index is still at dangerously high levels, which increases the likelihood of a correction.
The correction may come later
However, in recent months, Bitcoin reserves on exchanges have been on a continuing downward trend, as reported by Cointelegraph. This could compensate for a major correction across the market, particularly if BTC bullishness is accelerating FOMO (“Fear of Staying Out”), which means a large influx of new buyers.
Year-to-date, Glassnode found that the Bitcoin balance on exchanges decreased by 18%. The continued drop in exchange reserves reduces the likelihood of deep setbacks, which analysts, like Ki, have consistently emphasized in November.
In addition, there are other factors that can delay the correction until after Bitcoin exceeds $ 19,000 or perhaps even $ 20,000.
CoinMetrics network data analyst Lucas Nuzzi, found that the MVRV index, which tracks Bitcoin’s realized capitalization, is nowhere near the level that marked the previous tops.
The term realized capitalization refers to the market value of Bitcoin at the time when investors bought BTC. If the realized capitalization is high, it means that many investors bought BTC at a higher price.
So there is a strong case for a delayed retracement, potentially after the current high has spread too far. On November 20, Cole Garner, a network analyst, wrote:
“Bitcoin liquidity on exchanges is melting. Institutions are not prepared for such a shortage. “