Bitcoin price is down today due to excessively overbought conditions and miners offloading some BTC.
BTC $42,329 price encountered a selloff on Dec. 11, dropping nearly 7.5% to around $40,640. Multiple factors contributed to the price decline,
Bitcoin indicators show overbought correction
Bitcoin’s price decline on Dec. 11 show a leverage wipeout has taken place amid overbought conditions.
Notably, the cryptocurrency’s daily relative strength index (RSI) has been above 70 since Dec. 5, indicating that its overvalued. An overbought RSI typically leads to the formation of local market tops as buyers diminish and sellers pile in.
On-chain indicators also show an upside exhaustion among traders.
For instance, Bitcoin’s Net Unrealized Profit/Loss (NUPL) indicator, which represents the ratio of investors generating profits, has surged over 0.5 for the first time since December 2021.
In other words, most Bitcoin investments now are sitting atop unrealized gains, increasing the likelihood of profit-taking at current market tops.
Bitcoin miners are among profit-grabbers
Tracking Bitcoin miners’ reserves further solidifies the profit-taking scenario.
For instance, Bitcoin’s drop today follows a strong decline in miners’ BTC holdings, according to wallet data tracked by CryptoQuant. That coincides with an increase in miners’ BTC flows toward crypto exchanges, indicating they intend to or are already selling.
The way it looks, miners are securing profits due to 2024’s halving event, which will reduce their rewards by half. Coupled with the increasing competition indicated by a rising hash rate, BTC miners will likely adopt strategies that strengthen their cash holdings.
Bitcoin longs rekt
Bitcoin’s price decline today coincides with the liquidations of $87 million worth of long positions in the BTC derivatives market. In comparison, only $9.91 million worth of short positions have faced liquidations.
When the market liquidates a large number of long positions, it suddenly sells a significant amount of the asset. It can trigger stop-loss orders set by other long traders, adding more selling pressure.
More downside for Bitcoin?
From a technical perspective, Bitcoin’s decline today is part of its prevailing consolidation trend that has been painting a bullish pennant setup, confirmed by its triangle-shaped sideways trend.
Bullish pennants are upside continuation patterns that form after a strong rising trend. They typically resolve when the price breaks above their upper trendline with strong volumes and rises by as much as the size of the asset’s previous uptrend.
As a result, BTC’s price will likely continue in the pennant range, thus eyeing a rebound toward the setup’s upper trendline near $44,000. But a decisive breakout could take the price to $50,000 by the New Year’s or in January 2024, when a Bitcoin ETF decision is also expected.
The upside sentiment improves further due to the formation of two lower long candlestick wicks on the Dec. 8 and 11 candlesticks, indicating bullish rejection. Nonetheless, bad fundamentals, such as a potential Spot Bitcoin ETF rejection or delay, could invalidate the upside scenario.
In that case, Bitcoin will risk breaking below its pennant support of around $42,000, qualifying for a further dive toward its 50-day exponential moving average (50-day EMA; the red wave) at around $37,480.
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