Bitcoin Faces Critical Support Test Amid Bear Market Fears

• Bitcoin is currently experiencing a significant price correction, hovering around critical support levels that could predict further market challenges.
• CryptoQuant analysts have highlighted that Bitcoin has breached a crucial support level in the current bull cycle, and on-chain metrics suggest a lack of imminent recovery.
• The cryptocurrency has dipped below the traders’ realized price lower band for the first time in this bull market, raising concerns about its future trajectory.

Discover how Bitcoin’s recent price plunge could signal a new market phase and what traders must watch to navigate this volatile environment.

Bitcoin Breaches Key Support Level

Bitcoin’s latest price drop has seen the asset fall below the critical support level that has underpinned its valuation throughout this bull cycle. The weekly analysis by CryptoQuant reflects that BTC has dived under the traders’ realized price lower band, signaling potential risks if it continues to decline. The support level hovering around $40,000 is now crucial; failing to hold this could confirm the beginning of a bearish phase.

Market Signals Indicate Further Correction

Indicators from the futures market and declining Bitcoin demand suggest that the correction may not be over yet. Trading has been largely characterized by selling and shorting activities, with investors preferring short positions as indicated by negative funding rates. Since late May, Bitcoin traders have reduced their holdings, reflecting a broader decline in market participant demand.

No Positive Momentum from Traders

The sharp decline in Bitcoin’s price has also led to significant negative profit margins for traders, reaching the lowest since the collapse of the FTX crypto exchange in November 2022. The current on-chain profit margin is at 18%, with positive momentum historically occurring when the profit margin surpasses zero and maintains above its 30-day moving average.

Valuation Metrics and Market Outlook

From a valuation standpoint, Bitcoin’s market value to realized value (MVRV) ratio has dropped below its 365-day moving average. This trend historically correlates with prolonged price declines or the onset of bear markets. Investors are advised to keep a close eye on these metrics to gauge potential price recovery, particularly if the MVRV ratio crosses above its 365-day moving average, or brace for further corrections if the downward trend continues.

Conclusion

Bitcoin’s breach of critical support levels and the lack of recovery signs from on-chain metrics raise concerns about a potential bearish cycle. Traders must monitor futures market activities, profit margins, and valuation ratios closely as these indicators will shape the market’s direction. While cautious optimism may be warranted if support levels hold, failing those might necessitate preparation for further downturns.