Bitcoin (BTC) staged a remarkable recovery on Friday, witnessing a 4% surge that led the leading cryptocurrency to retest the critical resistance level at $74,000, which has remained unbroken for the past month.
But even with this upward move, the cryptocurrency has returned to around $72,215, establishing itself at the upper end of its ongoing consolidation range.
Further declines ahead for Bitcoin?
CryptoQuant analyst Sunny Mom emphasizes that despite this recovery, Bitcoin has not yet reached a definitive bottom. She suggests further price declines are in the offing as current on-chain data shows the market is in a major ‘stress test’ phase.
I’m digging into the data, Sunny identifies several key factors that indicate the challenges for Bitcoin. First, she points to the six- to 12-month cohort of investors, who are currently underwater because their realized price (RP) is concentrated around $100,000.
This means that many of these medium-term holders are suffering losses, which could continue to put downward pressure on prices until this imbalance is resolved.
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Sunny also highlights the MVRV (Market Value to Realized Value) ratio, which stands at 1.2. This figure is generally considered a ‘DCA (Dollar-Cost Average) zone’ for ‘smart money’. However, substantial cyclical bottoms typically require the MVRV to be below 1.0, indicating a state of capitulation.
Furthermore, the importance of long term holders (LTHs) cannot be overstated. A sustainable price floor typically requires LTHs (those who have held their positions for more than two years) to make up more than 20% of the realized cap.
They currently only account for around 15%, indicating that the market does not have the robust structural support needed for a strong recovery. She outlines two possible paths for how Bitcoin could find its bottom.
Two potential paths to finding a real bottom
The first concerns a ‘Black Swan’ event: a sudden crash that triggers action forced liquidations among the more expensive investors. Although painful, Sunny believes this scenario could lead to a faster establishment of a solid Bitcoin price bottom, possibly within one to two months.
The second path, also called “The Great Boring,” features institutions holding their positions, allowing Bitcoin to trade between $60,000 and $80,000 for an extended period of time.
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The analyst claims this would allow new investments to mature into long-term investments, paving the way for a bottoming process that could continue until late 2026 or early 2027.
While the market may be at a “value floor” that is conducive to long-term dollar cost averagingSunny’s analysis shows that no real ‘structural bottom’ has yet formed for Bitcoin. Therefore, she noted that volatility between $60,000 and $70,000 is expected.
Featured image from OpenArt, chart from TradingView.com