Bitcoin price sell-off continues, but data highlights need for healthy correction

Bitcoin price is down 5% over the last 24 hours to trade at $41,645 on Dec. 11. Despite the sharp price correction, technical indicators and on-chain data show that Bitcoin (BTC) still displays strength as bulls strive to push the price back above $44,000.

On-chain data shows Bitcoin price “over-extended”

Bitcoin dropped as much as 7.2%, falling to $40,300 on Coinbase, triggering a conversation among analysts. Julio Moreno, head of research at on-chain analytics firm CryptoQuant, said that the flagship cryptocurrency’s price was “overheating after the recent rally above” the $40,000 psychological level. 

Some metrics are flagging #Bitcoin price is overheating after the recent rally above $40K (red areas).

1. The Bull-Bear Market Cycle Indicator: overheated bull phase for the first time since July.

2. The miner profit/loss sustainability: block reward growing much faster than… pic.twitter.com/irpVvBSV3G

— Julio Moreno (@jjcmoreno) December 7, 2023

More data from on-chain data analysis firm Lookintobitcoin highlighted exhaustion among bulls. According to its December 2023 report, Bitcoin’s price has reached its golden ratio multiplier near-term target, highlighted by the Crosby Ratio, which shows Bitcoin’s near-term price at “over-extended levels,” resulting in the need to correct, or at least slow down.

The golden ratio multiplier is an indicator that explores Bitcoin’s adoption curve and market cycles to understand how the price may behave in medium to long-term time frames.

In other words, Bitcoin reached overbought conditions above $40,000 as buyer exhaustion set in. Note that the flagship cryptocurrency’s relative strength index (RSI) shows that its has been massively overbought since Dec. 5. 

This is an early sign that buying pressure could eventually diminish, as traders saw the rally running out of steam and potentially chose to book profits.

Bitcoin price faces stiff resistance around $44,000

The ongoing correction in the Bitcoin market is due to the stiffness of the barrier around the $44,000 supply zone. The Lookintobitcoin golden ratio multiplier indicator, which explores Bitcoin’s adoption curve and market cycles, shows that the 1.6 multiplier target has now been reached around the $44,000 area. Note that BTC has been stuck here for the past week, “unable to break above it convincingly.”

In other words, Bitcoin’s price is facing fierce rejection from this supplier congestion area, making it a tough hurdle to jump for the bulls.

The stiffness of the barrier at $44,000 is accentuated by on-chain data from IntoTheBlock’s “in/out of the money around price” (IOMAP) model (shown below). According to the IOMAP chart, this level lies in the $43,346–$44,627 price range, where approximately 585.77 BTC was previously bought by roughly 1.43 million addresses.

Any attempts to push the price above this level would be met by aggressive selling from this cohort of sellers who may wish to break even.

Related: $300M crypto long liquidations — 5 things to know in Bitcoin this week

Can Bitcoin sustain the uptrend?

The ongoing correction could, however, be a bear trap, as it may be considered a healthy correction in an otherwise extensive bullish trend established over the past few months.

Moreover, data from crypto market intelligence firm Santiment showed that Bitcoin’s exchange outflows were increasing. According to the chart below, the BTC exchange flow balance now stands at -347.

The negative reading shows BTC outflows eclipsing inflows, suggesting that investors are more inclined to hold than sell, which is a bullish sign.

This suggests that the latest dip toward $40,000 could be a short-term correction giving traders an opportunity to buy more on the dip before continuing the upward trend.

From a technical standpoint, Bitcoin traded above all the major moving averages, which maintained their upward trajectory. Notably, these chart overlay indicators presented areas of strong support on the downside.

The moving average convergence divergence indicator (MACD) was still moving above the neutral line in the positive region. The MACD line (blue) was still positioned above the signal line (orange) after crossing above it on Oct. 16, suggesting that the market conditions still favored the upside.

Therefore, BTC’s price will likely continue to rise from the current levels, with buyers targeting a break above $44,000. Note that a clear breakout above this level could see Bitcoin rise to tag the $50,000 psychological level going into the New Year when the United States Securities and Exchange Commission is expected to make a decision on spot Bitcoin exchange-traded fund applications or in the spring of 2024 when the next Bitcoin halving event takes place.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.