Bitcoin experienced a spectacular price surge this past week, climbing by 19.16% according to CoinMarketCap. The leading cryptocurrency achieved a new all-time high of $93,434 on Wednesday, raising the prospects of hitting the six-figure mark by the end of the year to unprecedented levels.
However, amidst the enthusiastic market sentiment, CryptoQuant analyst Amr Taha has offered insights that suggest an impending price drop could be on the horizon. On Friday, Taha pointed out that many investors might be preparing to cash out as the Bitcoin Market Value to Realized Value (MVRV) ratio has reached 2.64. Typically, this trading indicator is used to evaluate whether an asset is overvalued or undervalued and to identify potential market peaks or troughs.
Taha elaborates that an MVRV ratio above 2 indicates that investors hold substantial unrealized gains, making it likely that they will start taking profits soon. Historical data from late 2021 and early 2022 show that profit-taking generally occurs when the MVRV ratio is in the range of 2.5-3.5, leading to significant market corrections.
Despite minor price drops in recent days, the current MVRV ratio of 2.64 suggests a potential for a major price correction. This sentiment is further bolstered by the Relative Strength Index (RSI), which remains in the overbought zone. Nonetheless, Taha notes that Bitcoin can sometimes form a significant market top only when the MVRV ratio hits as high as 4. Therefore, at its current level, Bitcoin might continue its upward trajectory if bullish momentum persists. The analyst recommends that investors closely monitor the MVRV ratio: a rise towards 3 could signal further price gains, whereas a drop to the range of 1.5-2 might indicate a local market top.
In addition to the concerning MVRV ratio, Taha has also observed that short-term holders have now amassed a realized market cap exceeding $30 billion, a level last seen in March 2024. Historically, Bitcoin has undergone substantial price corrections whenever the short-term holders’ realized cap reached similar levels, serving as another cautionary indicator for investors.
As of this writing, Bitcoin is trading at $91,738, marking a 3.97% gain in the past 24 hours. However, its trading volume has decreased by 7.42%, currently valued at $80.73 billion.
