According to a recent publication in the weekly newsletter The Week On-Chain, research conducted by analytics firm Glassnode suggests that Bitcoin, with its current trading value of $30,397, could potentially face a “market correction” if its trading price surpasses $33,000. The newsletter warns readers of the speculative selling risk that could emerge as a result of such price action.
According to recent data, investors who speculate on Bitcoin, known as short-term holders (STHs), have returned to the forefront this year and have been making an average profit of 12%. Their collective cost basis has provided significant support for the wider Bitcoin price at around $26,000. Glassnode, an observer of cost basis trends, has noted the importance of this support in recent weeks; however, it warns that the opposite effect may soon occur.
As a component of its analysis of the activities of both short-term and long-term holders (LTH), experts drew attention to specific thresholds for profit-taking by speculators. The metric used to determine these thresholds was the market value to realized value (MVRV) ratio, which assesses the current market value of coins in relation to the price at which they were last transacted. This metric provides insight into the profitability or loss experienced by holders, and it typically fluctuates around a value of one, representing a “breakeven” price.
According to the “Week On-Chain” publication, there is a notable response in the short-term holder market value to realized value (MVRV) ratio indicator, in response to a rupture of the breakeven point which has a value of MVRV = 1.
If the Bitcoin price maintains its upward momentum, the short-term holder market value to realized value (STH-MVRV) ratio will consequently increase in tandem. However, there is a distinct danger of profit-taking when this ratio surpasses 1.2. This is consistent with historical data indicating that market corrections are more likely to occur when the STH-MVRV ratio is within the range of 1.2 ($33.2k) to 1.4 ($38.7k), as investors begin to realize increasingly large unrealized gains.
Additional data support the notion that the recent price decline that touched $25,000 resulted in the elimination of entities inclined to divest their holdings. Glassnode’s analysis of the spent output profit ratio (SOPR), which assesses the profitability of BTC as it moves on-chain, consistently revealed a state of “exhaustion” among sellers positioned at or close to that price level.
According to a recent report, levels of exhaustion have been on the rise since the end of 2022, attributable to the downfall of Bitcoin’s multiyear low following the FTX exchange crisis. The report suggests that there have been instances of spot seller exhaustion evident in the recent weeks, which have occurred frequently below the lower band, leading to the final low point being set at $25.1k before recovering to a level above $30k.
