- Bitcoin is up 34.39% in the past month.
- An analyst sees a potential market correction and cites four reasons.
Since hitting a local low of $66,798 earlier this month, Bitcoin [BTC] has risen to an ATH of $93,483.
While the market seems optimistic that BTC will even reach $100,000, some analysts are pessimistic. One of these analysts is Ali Martinez, who has suggested four reasons why BTC could see a steep correction.
Reasons why Bitcoin could see a correction
In his analysis states Martinez identified four key reasons why Bitcoin is headed for a sharp decline. First, Bitcoin crypto enthusiasts are extremely greedy with a greed index of 90%.
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This greed was observed among retail investors, as evidenced by the spike in Google search interest for BTC.
According to him, spikes in search trends usually correspond with price drops, even as retail interest in Bitcoin signals further capital inflows. For example, in 2021, the biggest increases in search interest for Bitcoin resulted in a correction of 30%, 26%, 27% and 50%.
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The second reason is that smart BTC investors realized $5.42 billion in profits. This has led to a spike in the risk ratio on the sell side, indicating that investors are selling to maximize profits.
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Third, from a technical perspective, the TD sequential has presented a sell signal on the daily charts. This shows that the uptrend has been exhausted and a trend reversal will follow, especially as many investors take profits.
Source: Tradingview
The final reason is that the RSI indicates that Bitcoin is currently in the overbought area at 75.91. When the RSI becomes overbought, it suggests that an asset may be overvalued and buyers are losing momentum.
As such, the analyst pointed out that in the event of a price correction, BTC will find support walls around $85800, $83250 and also $75520, reaching a low of $72,880.
What BTC Charts Say
While the analysis provided above provides a cautionary tale for investors, it is essential to look at other market indicators and see what they say.
As noted above by Martinez, our analysis points to a possible pullback as BTC may be currently overvalued.
Source: Cryptoquant
For example, Bitcoin’s MVRV ratio has been on a sustained uptrend, reaching a high of 2.5. When the MVRV ratio becomes too high, it indicates an overbought situation.
Historically, high MVRV values have been followed by price declines as early investors sold to secure profits.
Source: Cryptoquant
Furthermore, Bitcoin’s NVT ratio has risen from a low of 14 to 44, indicating that while its market capitalization is rising, transaction activity is not keeping pace.
Read Bitcoin (BTC) price prediction 2023-24
This indicates a speculative price increase without corresponding growth in the value of the network. This implies that BTC is potentially overvalued as prices outpace on-chain activity.
Simply put, BTC prices could fall to meet actual market demand. If it declines, it will find the next support around $87140. However, if the USD 9100 support holds, BTC could continue its uptrend towards USD 100,000.