4 Reasons Why Bitcoin (BTC) Price Could See a Short-Term Correction

TL;DR

Some on-chain metrics suggest overbought conditions, flashing the sell signal in BTC. The Fear and Greed Index is currently in the “Extreme Greed” zone, which could indicate a local high and subsequent price decline. Bearish signals

Bitcoin (BTC) has been the talk of the town recently. It entered a massive bull run mode since Donald Trump’s victory in the US presidential election last week, with the price hitting an all-time high of $92,000 on November 13. However, some important factors suggest that it could retreat from these heights.

BTC Price, Source: CoinGecko

The first element we will focus on is BTC’s Relative Strength Index (RSI). The technical analysis tool measures the speed and change of price movements, ranging from 0 to 100.

Readings above 70 show that the asset could be overbought and headed for a correction. On the other hand, a drop below 30 usually indicates a potential buying opportunity. At the time of writing, the RSI is around 77, showing a sell signal.

Next on the list is BTC’s Market Value to Realized Value (MVRV), which, like the metric mentioned above, helps traders examine overbought or oversold conditions. A high ratio could be a precursor to a price drop, with the MVRV currently sitting at about 2.6.

“Historically, values ​​between 2.6 and 5 have aligned with market highs, but each cycle has seen progressively lower peaks,” IntoTheBlock said.

The third element is the Net Value to Metcalfe (NVM) ratio. It evaluates the market capitalization of BTC in relation to its network activity, specifically the number of active addresses.

It uses Metcalfe’s Law, a principle that suggests that the value of a network is proportional to the square of the number of its users. By applying this principle, the NVM provides information on whether the asset is overvalued or undervalued. According to data from CryptoQuant, the index is currently at approximately 1.24, leaning towards a bearish outlook.

Last but not least, we will talk about the return on the asset. The latest data shows that a whopping 99% of all BTC investors are sitting on some paper profits. 0% is underwater, while only 1% is at equilibrium.

BTC return, Source: ITB

While this may sound like good news for the incumbents, it may also signal a short-term pullback. In October of this year, almost 95% of the BTC supply was in profit as the price broke above $69,000. Shortly thereafter, however, a substantial correction caused the valuation to drop below $65.5K briefly. Similar scenarios were observed in September and March.

Bonus: Extreme Greed

An additional element that also hints at an incoming drop in the price of bitcoin is the fear and greed index, which has recently entered “extreme greed” territory. This evolution indicates that the current sentiment in the market is strongly bullish.

However, sometimes “extreme greed” is associated with impulse buying and a potential fear of missing out (FOMO) effect. It can indicate a point where the BTC valuation has reached a local peak just before suffering a pullback.

BTC Extreme Greed, Source: alternative.me

After all, one of Warren Buffett’s investment tips states that people should be greedy when others are fearful and vice versa.

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