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Will Bitcoin Plunge Into a Year-Long Bear Market? What On-Chain Data Reveals
Bitcoin’s recent price movement has raised concerns among analysts, suggesting a potential year-long bear market could be on the horizon. This bitcoin news comes as a closely monitored on-chain profitability gauge shows alarming trends reminiscent of previous downturns.
The metric known as “Supply in Profit” has reached a critical inflection point. Currently, Bitcoin stabilizes between $87,000 and $90,000, following a pullback from October’s peaks. Notably, the amount of Bitcoin held above its acquisition price has decreased sharply from over 19 million BTC to approximately 13.2 million BTC. This shift has created a significant gap between short- and medium-term moving averages, indicating potential volatility ahead.
Understanding the Supply in Profit Dynamics
Analysts are particularly attentive to the spread between the 30-day and 90-day simple moving averages of Supply in Profit. Historically, a significant gap between these two indicators has preceded extended bearish trends. Following Bitcoin’s all-time high, the 30-day average dropped significantly below the 90-day average, resulting in a gap of about 1.75 million BTC. This situation mirrors patterns seen in 2022, which preceded a prolonged market decline.
However, there is a crucial distinction this time. The 365-day moving average remains at historically elevated levels, suggesting that the long-term profit structure is still intact. This factor may provide a buffer against immediate bearish pressures.
Is a Bullish Recovery Possible?
The immediate question on investors’ minds is whether the 30-day trend has reached its bottom. Analysts have identified December 18 as a local minimum for the 30-day average, which is beginning to show signs of recovery. For a bullish signal to materialize, Supply in Profit must maintain levels above its 30-day average. This scenario necessitates Bitcoin holding steady at its current price levels or higher.
If current trends persist, analysts predict a bullish crossover—where the 30-day average rises above the 90-day average—could occur between late February and early March. This projection hinges on a mechanical effect: as high October values roll out of the 90-day moving average, the average is pulled down, creating a favorable environment for convergence.
The Critical Price Level: $70,000
Despite these optimistic signals, the outlook remains sensitive to Bitcoin’s price movements. Analysts estimate that Supply in Profit has an elasticity to price of 1.3x. Consequently, a 10% drawdown in Bitcoin’s price may lead to a 13% decline in the supply held in profit. The crucial price threshold is set at $70,000. Should Bitcoin fall below this level, Supply in Profit could drop to around 10 million BTC, increasing the gap between the moving averages. In such a case, the bullish crossover would be delayed indefinitely, potentially resulting in a market recovery similar to that of 2022.
Conversely, maintaining prices above $75,000 to $80,000 throughout January would keep Supply in Profit stable and support the convergence process. Currently, Bitcoin trades at approximately $88,102, making the next few weeks pivotal for market sentiment.
For those interested in more comprehensive analysis and ongoing updates on cryptocurrency trends, visit our crypto section. Stay informed and ready to navigate the ever-changing landscape of digital assets.
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