A pullback in the price of Bitcoin (BTC) is likely, based on several on-chain data points namely Spent Output Profit Ratio (SOPR) indicator, stable currency entries, sell orders stacked at $ 19,000 and the Crypto and Fear Index. However, the question remains as to when this correction would occur.
Profit-taking withdrawal possible with lower buying pressure
The SOPR indicator basically assesses the profitability of Bitcoin holders at the moment. When the SOPR is high, BTC may experience a pullback in profit taking, as traders tend to sell when they are profiting.
Meanwhile, Stable Coin feeds show how many Stable Coins, such as USDT Tether, are pouring into the exchanges. When stable coin inflows increase, it usually means that demand from buyers is increasing. On the other hand, selling pressure tends to increase when BTC reserves exceed the inflow of stable coins.
Over the past few days, the SOPR indicator has reached a level that previously led the price of Bitcoin to correct itself, such as in late 2018 and summer 2019.
On November 20, Rafael Schultz-Kraft, Technical Director of Glassnode, Noted:
“SOPR adjusted (hourly, 7d MA) as high as it has not been since July 2019. Correction pending?”
This trend can become of concern if the momentum of Bitcoin slows down. Renato Shirakashi, the creator of the SOPR indicator, said the work of Nobel laureate Daniel Kahneman shows investors are comfortable selling when they are making a profit.
Therefore, if Bitcoin stagnates or consolidates in the short term below the resistance of $ 19,000, a slight pullback could emerge. Shirakashi wrote:
“People, in general, are much more comfortable selling when they’re making a profit. In a bull market, when the SOPR falls below 1, people would sell at a loss and therefore be reluctant to do so. This drastically lowers the supply, which in turn puts upward pressure on the price, which increases. “
The rise in CryptoQuant’s stable exchange ratio coincides with the rise in the SOPR. The Stablecoins ratio is the Bitcoin exchange reserves divided by the stable reserves. When it increases, it shows that the potential selling pressure is increasing.
As such, CryptoQuant CEO Ki Young Ju expects a correction in the near term, although not a big correction, in the short term. he Noted:
“The potential selling pressure for BTC is increasing, but remains low. We will see a correction in a few days but it will not be big. Long term bullish. “
$ 19,000 stands in the way of new all-time high
Trade order books also show that the $ 19,000 level has become an area of significant resistance. There are large sell orders on Bitfinex, Bitstamp, Binance and Coinbase close to $ 19,000, which could prevent a continuation of a rally.
– Byzantine General (@ByzGeneral) November 21, 2020
Another possible factor that could trigger a short-term pullback is the Crypto Fear and Greed Index. The index is still at dangerously high levels, increasing the likelihood of a correction.
The correction could come later
However, over the past few months, Bitcoin’s reserves on the exchanges have been in a continuous downtrend, as TBEN reported. This could offset a major market-wide correction, especially if the BTC bull run accelerates the FOMO trigger, which means a large influx of new buyers.
Since the beginning of the year, Glassnode found that Bitcoin’s balance on exchanges has declined by 18%. The continued decline in foreign exchange reserves is reducing the likelihood of deep drawdowns, which analysts like Ki consistently pointed out in November.
Additionally, there are other factors that could delay the correction until after Bitcoin. breaks $ 19,000 or even $ 20,000.
Lucas Nuzzi, CoinMetrics Network Data Analyst found that the MVRV ratio, which tracks Bitcoin’s realized cap, is not close to the level that marked previous highs.
The term realized cap refers to the market capitalization of Bitcoin at the time investors bought BTC. If the realized cap is high, it means that many investors bought BTC at a higher price.
Therefore, there is a strong case for a delayed pullback, potentially after the ongoing rally has dragged on too long. On November 20, Cole Garner, a chain analyst, wrote:
“The liquidity of the Bitcoin exchange is melting. The institutions are not prepared for such a shortage. “