As Bitcoin (BTC) surged past the $64,000 mark, on-chain indicators are now raising concerns about a possible overheating of the market. Analysis from market intelligence firm CryptoQuant suggests that the rising traders’ unrealized profit margin and the high cost of opening new long positions in perpetual futures markets are signaling a potential pause or correction in Bitcoin’s price.
The recent rally in BTC price has been largely attributed to increased demand from U.S. investors, particularly larger entities. The Coinbase premium index, which measures the premium of BTC price on Coinbase compared to other exchanges, has reached 0.13%, the highest since mid-February. This surge in demand is reflected in the holdings of entities with 1,000 to 10,000 BTC, which have grown to 3.975 million BTC, a level last seen in July 2022.
Despite the bullish sentiment in the market, analysts warn that Bitcoin’s price could be on the verge of a correction. The current price level has surpassed the previously identified short-term target of $56,000 based on network activity valuation. The Metcalfe Price Valuation Band, which has historically acted as a resistance level, could trigger a correction around the current price level.
One of the key indicators of a potential correction is the high cost of opening new long positions in the perpetual futures markets. Additionally, traders’ unrealized profit margin has reached 32%, close to the 40% threshold that typically precedes a price correction. These factors indicate that the market may be overheated and due for a pullback.
On the other hand, the Miner Profit/Loss Sustainability metric suggests that miners are still underpaid, indicating that Bitcoin’s price may not be excessively overheated. While miners are not as profitable as they were in early January, when BTC was priced at $38,000, they are still not at unsustainable levels.
While the recent surge in Bitcoin’s price has been driven by increased demand from institutional investors, on-chain indicators are now pointing towards a possible correction. The high cost of opening new long positions, traders’ unrealized profit margin, and historical resistance levels all signal that Bitcoin may be due for a pullback. However, the overall sustainability of miners suggests that the market may not be as overheated as it appears. Investors should monitor these indicators closely to navigate the current market conditions effectively.