On the night of December 11, the price of Bitcoin fell by approximately 7.5% to $40,640. Multiple factors contributed to this decline. At the time this article was written, Bitcoin was trading at $42,264. Let’s examine what is expected for Bitcoin.
The drop in Bitcoin indicates a correction towards overbought conditions in the futures market. Specifically, Bitcoin’s daily Relative Strength Index (RSI) has been trading above 70 since December 5, indicating that the price was overvalued. An overbought RSI level typically leads to a decrease in buyers and an increase in sellers, resulting in the formation of local market peaks.
On-chain data also shows increasing fatigue among investors. For instance, the Net Unrealized Profit/Loss (NUPL) indicator, which represents the ratio of investors profiting from Bitcoin investments, drew attention by rising above 0.5 for the first time since December 2021.
In short, many Bitcoin investments are currently sitting on unrealized gains, which increases the likelihood of investors taking profits at current market peaks.
Monitoring Bitcoin miners’ reserves reinforces the profit-taking scenario. Wallet data tracked by CryptoQuant showed that the drop in Bitcoin on the night of December 11 was followed by a significant decrease in miners’ Bitcoin holdings. This coincides with an increase in Bitcoin flows to crypto exchanges, indicating they aim to sell or have already sold off their holdings.
The decline in Bitcoin’s price coincided with the liquidation of long positions worth $87 million in the futures market. In contrast, only short positions worth $9.91 million were liquidated.