Bitcoin Exhibits Short-term Surge but Possesses Long-term Vulnerabilities, Warnings of Double-Top Emergence
In the past month, Bitcoin (BTC) holdings have seen growth among both long-term and short-term investors. BTC buyers in the 1W-1M cohort increased their holdings by 3.6%, while 1D-1W holders grew by 1.4%. However, these gains may be short-lived as several technical indicators suggest a potential price correction for Bitcoin in September 2022.
The MVRV ratio, a significant technical indicator, is nearing peak historical levels. This ratio compares Bitcoin’s current market capitalization to the average cost basis of holders. A high MVRV ratio usually indicates that Bitcoin is overvalued relative to what holders paid, often preceding a market top and potential correction. Specifically, the MVRV 365-day moving average (MVRV 365DMA) reached levels near those seen at Bitcoin’s 2021 peak, which historically signaled a cycle top around late August or early September, suggesting an impending correction risk.
Another crucial technical indicator is the Double-Top Camel pattern. This pattern, which led to the 2021 bear market, is forming with two peaks roughly six months apart. Bitcoin has already formed the first peak of this pattern, with the second projected around the 10th of September. The repetition of this pattern in 2022 indicates a potential repeat of that cycle top behavior, serving as an early warning for traders and investors that a correction could arise soon.
These indicators imply that Bitcoin is approaching a critical inflection point in late August to early September 2022, making a price correction more likely due to historical precedents where similar MVRV levels and double-top patterns signaled the end of bull cycle phases.
Investors should proceed with caution due to the potential for a significant decline in Bitcoin's price. CryptoQuant analyst Yonsei Dent has echoed this sentiment, warning that broader market conditions call for caution.
Despite the potential decline, investors haven't stopped accumulating Bitcoin. The cohorts of BTC buyers have accumulated Bitcoin between $115,252 and $117,762, just under the current price of $118,786. This suggests that investors remain optimistic about Bitcoin's future price performance.
However, the recent selling by institutional investors, who offloaded $285.2 million worth of BTC over the past four trading days, is a concern. The two-day purchase by institutional investors in late July was the lowest recorded in recent months, indicating waning interest.
The drop in exchange-held Bitcoin often signals that investors are moving assets into private wallets for long-term holding, with little intent to sell in the near term. This behavior of long-term BTC holders suggests confidence in a short-term rally, as they have not been panic-selling.
Bitcoin's current price has stagnated over the past week, showing only modest gains. This could indicate that the market is preparing for a fresh rally, potentially ending between late August and early September, or it could be a sign of a prolonged correction.
In conclusion, the MVRV ratio nearing peak historical levels combined with the double-top pattern provides a technical basis to anticipate a potential Bitcoin price correction in September 2022. These signals encourage caution among market participants about possible near-term volatility and a market pullback after a strong rally. However, the continued accumulation of Bitcoin by investors suggests that the digital currency still has potential for more upside in the coming days.
- The MVRV ratio, currently nearing peak historical levels, often indicates that Bitcoin is overvalued, potentially preceding a market top and correction, implying a possible price correction for Bitcoin in September 2022.
- The Double-Top Camel pattern, which led to the 2021 bear market, is forming with two peaks roughly six months apart, with the second peak projected around the 10th of September, serving as an early warning for traders and investors that a correction could arise soon.
- Despite the potential decline, investors have shown continued interest in Bitcoin, with BTC buyers accumulating Bitcoin in the range of $115,252 to $117,762, just under the current price of $118,786.
- The drop in exchange-held Bitcoin suggests that investors are moving assets into private wallets for long-term holding, with little intent to sell in the near term, hinting at a confidence in a short-term rally and potential upside in the coming days.
