Bitcoin's Supply-in-Profit Decline Resembles 2021 – Will We See a Bounce?

Bitcoin [BTC] has recently surpassed the $90,000 mark again. In the past week, buyers have managed to challenge and briefly exceed this level on two occasions. To maintain this short-term upward trend, breaking through the $94,000 mark on the next attempt is crucial.

Key Takeaways

Bitcoin has recently crossed the $90,000 mark again, with a focus on breaking through $94,000 for continued upward momentum.
An increase in miner reserves may indicate a potential local bottom for Bitcoin.
Spot trading volume has decreased, while Futures trading remains high, creating concerns over market sentiment.
Historical trends suggest a possibility of bouncing back to higher prices, similar to 2021, but caution is advised as bear market risks linger.

Bitcoin’s supply-in-profit collapse mirrors 2021- bounce incoming?

A report from AMBCrypto noted an increase in miner reserves over the last few days, supporting the idea that a potential local bottom may have been established. However, there are signs that December might bring more sideways movement rather than a clear upward trajectory.

Reasons Bitcoin Might Have Found a Local Bottom

Bitcoin Spot Volume

Source: Darkfost on X

Analyst Darkfost shared insights on X, indicating that spot trading volume on major exchanges slowed during November. Binance, which commands the largest share of volume, experienced a significant drop of $40 billion from October to November.

Over the month, Bitcoin saw a 17.5% price reduction, with the analyst pointing out that as we move deeper into this cycle, Bitcoin's spot trading activity dwindles. Additionally, peaks in trading volume have been noticeably lower.

In contrast, Futures trading has remained active, with the spot volume accounting for only 0.23 of the Futures volume ratio.

Market sentiment has consistently lingered in the "fear" zone, with many discussions around the potential for a bear market phase that remains unconfirmed. Typically, a fearful market and low trading volume accompany a local market bottom; however, these conditions also raise concerns about a possible shift to a bear market.

Bitcoin Supply in Profit Bands

Source: CryptoQuant

The metric for Bitcoin Supply in Profit Market Bands has sharply declined from above the psychological inflection line down to below the liquidity accumulation line. This indicates that, until very recently, the supply in profit suggested positive market conditions. However, selling pressure since early October has eroded these holders' profits, mirroring a similar situation from June 2021.

At that time, Bitcoin was able to reach new highs before entering a bear market. A comparable scenario could happen again, but investors should stay cautious and prepare for a potential transition to a bear market as well.

Final Thoughts

Bitcoin’s recent trading patterns and market sentiment provide important insights into its potential future trajectory. While indicators suggest that a local bottom might have been reached, the past history of price movements encourages cautious optimism as investors navigate these uncertain waters.