Bitcoin on-chain analysis suggests a correction may be coming
The crypto market has recently experienced a period of relative stability, halting the bear market. However, recent on-chain data analysis of bitcoin indicates that a correction may be looming. Several key metrics from the blockchain data platform Glassnode have reached noteworthy levels.
One of the most significant indicators is the reserve risk, which has climbed to a nine-month high of 0.000030. This metric is used to evaluate the confidence of long-term holders in relation to the price of bitcoin (BTC).
A high reserve risk suggests that holding onto bitcoin is becoming more expensive than the potential rewards. In the past, market corrections have often followed such spikes in reserve risk.
Another concerning indicator is the number of unspent transaction outputs (UTXOs) in loss, as measured by the seven-day moving average (7d MA). This figure has just reached an 11-month low of 23,492,344.464.
When the number of UTXOs in loss decreases, it implies that fewer bitcoin holders are underwater on their investment, which can lead to reduced selling pressure. However, this may also signal a potential local market top if the trend continues and more holders decide to take profits.
Furthermore, based on a seven-day moving average, the number of addresses in loss has hit a one-year low of 11,828,073.095. This metric gauges the number of unique bitcoin addresses currently holding coins worth less than they were when they received them. A declining number of addresses in loss suggests increased market optimism, but it can also be an early warning sign of an impending correction if traders and investors decide to take profit.
The miners’ outflow volume, which measures the amount of bitcoin sent from miners to exchanges, has reached a three-month low of 48.092 BTC (7d MA). Lower outflow typically indicates that miners are holding onto their newly-mined coins, anticipating higher prices in the future. However, it also indicates that they are holding on to more and more bitcoin, which could trigger a major selloff when they eventually start selling.
Lastly, the crypto exchange net flow has turned negative, registering at -$215.6 million. This implies that more bitcoin is being withdrawn from exchanges than deposited, which could indicate that investors are looking to hold onto their coins rather than trade them.
This means that any potential selloff is likely, not immediate. While this can be a bullish signal, a sudden shift in sentiment could still lead to an influx of bitcoin back into exchanges, despite being less immediate than the selloff of coins held on exchanges.
In conclusion, recent on-chain analysis suggests that the bitcoin market may be approaching a turning point despite an overall positive current sentiment. While some of the above indicators can be interpreted as bullish signals, the overall trend could indicate that a correction could be a bump on the road up.
That being said, on-chain data also indicates that bitcoin is in the middle of an accumulation phase and has been there for some time. Also, bitcoin is no stranger to long bullish periods resulting in most investors being in profit but still holding onto their assets due to their confidence in it and fear of passing on bigger profits — meaning that the correction coming is far from being a safe bet.