According to researchers at Santiment, Bitcoin has been in an “overbought territory.” Merely two hours after the report came out, BTC dropped 4% within two hours.

Possibly due to the uncertainty around the U.S. election on November 4, the cryptocurrency market saw a steep pullback. As Bitcoin declined from $13,750 to $13,200, Ethereum and other major cryptocurrencies also plunged.

The daily price chart of Bitcoin. Source: BTCUSD on TradingView.com

Bitcoin at risk of a short-term correction, but it’s not all negative

Bitcoin is showing signs of a short-term price drop for the first time since its rally in September. The daily candle of BTC dropped below the 10-day moving average, which has not happened since early October.

But as researchers at Santiment noted, the rally of Bitcoin was quickly becoming overcrowded. It rose 33% in just 23 days, as the market started to show signs of fear of missing out (FOMO).

As such, a decent-size pullback at a major resistance level at $14,000 is a positive for the sustainability of the rally. Santiment said:

“The new MVRV Divergence Model from Santiment indicates that #Bitcoin is in overbought territory, according to profits by average traders over various timeframes. Particularly in the past 6 months time range, average $BTC traders are +114.7% in profit.”

A near-term corrective phase was always likely due to the overwhelming majority of the market being in profit.

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The MVRV Divergence Model shows Bitcoin is overbought. Source: Santiment

On October 27, Glassnode analysts said that the number of Bitcoin millionaires exceeded 20,000. This did not occur since January 2018, after BTC hit an all-time high at $20,000.

The high percentage of Bitcoin addresses being in profit means the number of potential investors that could sell BTC has risen. The analysts said:

“The number of #Bitcoin millionaire addresses (addresses holding ≥ $1M worth of $BTC) crossed 20,000. It is the highest value since January 2018.”

Bitcoin correcting after a two-month-long rally is positive for two reasons. First, it offsets the overly enthusiastic market sentiment and neutralizes both spot and derivatives markets. Second, it would be considered a normal market reaction in anticipation of major macro events, like the election.

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The number of Bitcoin millionaires. Source: Glassnode

What happens next?

Technically, Bitcoin consolidating above the $13,200 to $13,300 support range strengthens the base of the rally.

Cantering Clark, a trader and a technical analyst, said:

“That 12.9 idea is for a flush of the low but no need to think too many levels out given how strong the trend has been. Best to deal with the first sticky areas. This 13.2-13.3 area is a good area technically for us to find a base.”

The short-term moving averages show that the $12,200 to $12,500 range remains a major support area. As long as BTC stays above $12,200 and reclaims $13,300 even after a big pullback, the overall structure would remain positive.

Bitcoin, currently ranked #1 by market cap, is down 2.91% over the past 24 hours. BTC has a market cap of $247.6B with a 24 hour volume of $31.12B.

Bitcoin Price Chart

BTCUSD Chart by TradingView

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