These metrics suggest that Bitcoin faces further downside risk: CryptoQuant

Bitcoin’s latest price correction has the asset hovering around key support levels that could spell more doom for the market. Analysts at CryptoQuant say the cryptocurrency has broken through a key level acting as resistance in this bullish cycle, and the chain’s metrics show no signs of recovery anytime soon.

According to the weekly report, BTC has fallen below the lower band of prices made by traders for the first time in this bull run. This level has acted as a support in this cycle, and if the support fails, the cryptocurrency is at risk of plummeting to the $40,000 level, which is the minimum price band made by traders.

However, analysts think there is little chance of the support failing because that would imply the market has entered a bearish cycle.

A further correction risk

Futures market metrics and declining demand for bitcoin from traders indicate that BTC could extend this correction and cause further bloodshed. Trading activity in the futures markets has been dominated by selling and short selling transactions, with investors more willing to open short positions than long positions, as seen in funding rates turning negative.

Bitcoin traders have been reducing their holdings since the end of May, and demand for BTC from this cohort of market participants has continued to decline.

“Traders increased their holdings from October 2023 to early May 2024, when Bitcoin rose towards $70,000. We should see a recovery in demand for Bitcoin from traders for the price to recover as well ,” said CryptoQuant.

There is no positive momentum from traders

The fall in the price of bitcoin also dragged traders’ profit margins to the most negative level since November 2022, when the bankrupt crypto exchange FTX collapsed; so there is no positive momentum from them. Its profit margin in the chain currently stands at 18%; Positive price momentum comes when the profit margin rises above zero and holds above its 30-day moving average.

From a valuation perspective, bitcoin’s Market Value to Realized Value (MVRV) ratio has fallen below its 365-day moving average. Historically, this move is aligned with an extension of the price decline or the emergence of a bear market.

“Investors should monitor these types of valuation metrics to assess the possibility of a price bounce (if MVRV breaks above its 365-day moving average again) or a further correction,” the analysts added.

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