CoinDesk Report:
Recent on-chain indicators for Bitcoin suggest a potential market top, similar to previous years’ cycle peaks. Analysts have observed an increase in selling activity, in line with historical trends.
As of the time of writing, Bitcoin (BTC) is experiencing a slump, reversing its earlier momentum of surpassing $63,000.
In the past week, this cryptocurrency has now fallen by 1.1%, dropping by 2.7% in the past 24 hours alone, bringing its trading price down to $60,929.
Amidst these market fluctuations, Charles Edwards, the founder of Capriole Investments, suggests that various on-chain indicators indicate a potential weakening of Bitcoin’s market strength.
A Turning Point for Bitcoin?
Charles Edwards points out that various on-chain indicators could lead to market exhaustion. One significant sign is the behavior of the Long-Term Holder (LTH) inflation rate for Bitcoin, which Glassnode monitors.
The LTH inflation rate has been steadily rising over the past two years, measuring the annualized rate at which long-term holders sell Bitcoin relative to newly minted coins.
Currently, it hovers around the historical threshold associated with market tops. Edwards notes that a LTH market inflation rate close to the nominal inflation rate of 2.0 often heralds a cycle peak.
As of the time of writing, the figure dangerously approaches 1.9.
Another key indicator discussed by Edwards is Dormancy Flow, which evaluates the value of dormant coins relative to their age and overall transaction volume.
Recent data shows a sharp increase in the Dormancy Z-score, particularly in April 2024, which could imply that older coins are moving at the pace of a cycle top.
Edwards elaborates,
“The peak of this Z-score indicator typically occurs three months after the cycle top. Well, it’s three months later now. The price has only gone down, and the structure of the Dormancy Z-score peak is very similar to the peaks in 2017 and 2021.”
As of the time of writing, the Dormancy Flow Z-score indicates that Bitcoin’s price may be reaching a peak in this cycle, as it appears overvalued based on the trading volume of older coins, potentially foreshadowing a broader market slump.
Additionally, with the increase in market risk, there has been a surge in Bitcoin spending, especially of coins from 7-10 years ago, which often signals the end of a cycle.
Edwards notes a significant increase in spending in 2024, citing an unprecedented movement of on-chain Bitcoin quantities.
He also mentions that over $9 billion worth of Bitcoin from accounts dormant for over 10 years has been mobilized, primarily due to settlement activities related to the now-defunct Mt.Gox exchange.
Cycle Tops: Do Traders Know?
While Charles Edwards highlights potential weaknesses in Bitcoin’s price, a cautious approach is to examine it from other perspectives.
Analyzing BTC’s long and short liquidation leverage on Coinglass, data shows that the majority of liquidations in the past 30 days have been long positions, indicating that many traders expect the value of Bitcoin to rise.
Whether these long positions prove profitable for traders or if Bitcoin’s price will continue to decline confirms Edwards’ viewpoint, and only time will tell.
Read Bitcoin’s [BTC] Price Predictions for 2024-25
Meanwhile, in terms of price trends, a recent report by AMBCrypto suggests a positive shift in miner activity.
Specifically, miner reserves have increased significantly, which could boost Bitcoin’s price.