Bitcoin's Value Drops 7.5% Amid Overbought Warnings and Profit-Taking Trends
Summary:
The value of Bitcoin (BTC) took a roughly 7.5% hit on December 11, decreasing to around $40,640. Factors like overbought corrections and profit-taking among Bitcoin miners contributed to the decline. The dip concurred with $87 million worth of liquidations in the Bitcoin derivatives market. Technically, Bitcoin's drop aligns with a bullish pennant setup that signals potential recovery, but poor fundamentals could hinder this trajectory.
The price of Bitcoin (BTC) experienced a significant decrease on December 11, plunging nearly 7.5% to the region of $40,640. A combination of elements led to the fall in value, including overbought warnings from Bitcoin indicators. December 11 marked a considerable leverage wipeout in Bitcoin's value, a sign of over-purchasing.
It's important to note that the digital currency's daily relative strength index (RSI) has exceeded 70 since December 5, suggesting that it has been overpriced. An RSI value that signifies over-purchasing often precedes local market peaks as the demand from buyers dwindle and more sellers enter the market.
Bitcoin's on-chain indicators also signify a fatigue of upward movement among traders. One important metric, the Net Unrealized Profit/Loss (NUPL) – a measurement of the ratio of investors making profit – had risen above 0.5. This is the first time such an increment has been recorded since December 2021.
In simpler terms, the majority of present Bitcoin investments are resting on yet-to-be-realized gains, a condition that enhances the probability of investors cashing in on their profits given current market peaks.
A closer look at Bitcoin miners' reserves further affirms the profit-cashing scenario. Notably, a sharp decline in miners' Bitcoin holding patterns has been observed in relation to the fall in Bitcoin's value. Wallet data tracked by CryptoQuant suggests a growth in miners moving their Bitcoin assets to cryptocurrency exchanges, a clear indication of selling intentions.
In light of anticipating the halving event that is set to occur in 2024, miners appear to be securing profits, a move that will see their rewards decrease by half. In addition to increasing market competition as evidenced by a heightened hash rate, Bitcoin miners will likely establish strategies that boost their cash possessions.
Substantial liquidations within the Bitcoin derivatives market – worth $87 million of long positions - coincides with Bitcoin's decreased value. It's noteworthy that only $9.91 million value of short positions have been liquidated.
Such massive liquidations of long positions trigger sudden sales of significant amounts of the asset. This can spark stop-loss orders from other long traders, therefore escalating selling pressure.
From a technical standpoint, Bitcoin's price decline is a part of the ongoing consolidation trend which is forming a bullish pennant setup, validated by its horizontally-oriented trend.
Bullish pennants are patterns anticipated to continue upward movement following a sharp rising trend. They usually resolve when the price breaks above their upper trendline with substantial volumes and elevates equivalent to the previous uptrend of the asset.
Therefore, Bitcoin's price is likely to persist in this pennant range, potentially rebounding towards the setup's upper trendline around $44,000. However, a decisive breakout could drive the price to touch $50,000 by the start of the New Year, or in January 2024, which coincides with a potential decision on a Bitcoin ETF.
Two lower long candlestick wicks on the Dec. 8 and Dec. 11 candlesticks denote bullish rejection, further boosting the sentiment for increased value. Nevertheless, downturning fundamentals such as the possible delay or denial of a Spot Bitcoin ETF could render the upward scenario void. In which case, Bitcoin could risk breaking below its pennant support of approximately $42,000, paving the way for a further descent towards its 50-day exponential moving average (50-day EMA) which currently sits around $37,480.
This report is designed to provide general information and should not be considered a substitute for legal or investment advice. The opinions expressed are those of the author and do not necessarily represent the views or opinions of Cointelegraph.
Published At
12/11/2023 12:51:15 PM
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