Is Bitcoin About to Crash Again?
If Bitcoin refuses to break the critical $70,000 mark, then we may have toppled over. Bitcoin prices dropped by over 3.7% within three days of the $69,487 peak on October 21.
However, there are a few signs that this drop could be just the start of a deeper correction. Approximately 92.4% of Bitcoin holders are in the green, which puts the market at a risk of profit-taking that can further weigh on prices. Is a crash imminent upon us? Let’s analyze the data.
Bitcoin Holders in Profit: A Double-Edged Sword?
The number of those who are in profit is a key signal worth monitoring, as many profitable investors creating selling pressure is traditionally the precursor to a price drop.
Researcher Axel Adler Jr. estimates that most of these holders purchased their bitcoins for roughly $55,000 each. If Bitcoin’s price does not drop to that level, 90% of investors will remain in profit and have the most potential for profit-taking.
The market is very toppy when a large percentage of bitcoin investors are in profit, as previous history has shown, which usually leads to corrections. We have seen this in previous bull cycles, with high numbers of profitable holdings quickly being followed by correction.
Bitcoin Open Interest (OI) Hits Record Highs
Bitcoin derivatives’ open interest (OI) topped $40 billion in an all-time high on October 21. An increase in OI means that there is more leverage in the market; this usually leads to an increase in volatility. To put it another way, higher money is gambling on future Bitcoin rate movements that would result in fast and crazy volatility up and down the value chart.
Bitcoin Surpassed the ‘Overbought Zone’
For instance, on October 20, the Bitcoin daily relative strength index (RSI) reached an overbought state of 70, which was followed by a steep drop down to $66,000. RSI is referred to as the relative strength index, which is a popular technical indicator that determines an overbought or oversold condition by measuring how much price changed.
The overbought situation shows the fact that at this price level, bitcoin has gone up too quickly and now, after the cold dip, there is a high possibility amidst the pullback, as it generally means.
Fear and Greed Index Analysis
The Crypto Fear & Greed Index, a tool that measures market sentiment, reached 72, which translates to “greed” levels of market conditions. For reference, readings above 70 are historically associated with price pullbacks.
For example, the last time the indicator was above 70 occurred in March 2024, shortly before Bitcoin crashed from $73,835 high down to $56.500 in May. This reminds me of 2021 and 2019 patterns, when after rallies fuelled by greed, Bitcoin faced the major corrections.
Could Bitcoin Crash Like in Previous Cycles?
Past tops for Bitcoin in 2019 and 2021 witnessed a similar pattern of high open interest coupled with an overbought RSI and high Fear & Greed Index. In both cases, those signals were soon followed by a near 20% price correction or more. In August 2024, Bitcoin plummeted 20% in 48 hours under similar conditions — before ultimately setting a swing low at $49,577.
The confluence of high open interest, excessive profit-taking and overbought levels could be the perfect recipe for a bitcoin collapse. We can never be sure of the timing, but the indicators are piling up, suggesting we may have a short-term reversal. A significant and robotic pullback if Bitcoin does not manage to hold onto important areas of support—such as the $55,000 level pointed out by WBTC analyst Axel Adler Jr.—could occur.
Signs Point to a Pullback
So when combining that, the level of Bitcoin holders is in profit. If they’ve sold, increasing open interest and overbought conditions, we’re looking at a very overheated market for Bitcoin, which in turn could signal an impending deeper price correction—end quote! We have no way of knowing exactly when or how deep such a pullback would occur, but volatility appears to be brewing and the data suggest that this could result in a much larger price drop within the next few days.
The road for Bitcoin beyond US$70,000 may not be as plain sailing as it seems and the chance of a retracement needs to be factored in by investors as the market acclimatizes from its current euphoria level.
