According to a recent report by Glassnode, Bitcoin (BTC) is at a critical point in the market and needs to stay above $92,500 to sustain its bullish trend.
This report draws attention to similarities between the current price dynamics and earlier cycle peaks, expressing worries about potential downside risks if buying momentum diminishes.
Supply dynamics and historical trends
A vital factor in evaluating Bitcoin’s risk is the supply held by short-term holders (STH), showing parallels to patterns seen in May 2021. Accumulation trends observed during that period resulted in increased susceptibility to price drops, leading to significant distribution events.
Currently, Bitcoin’s price is fluctuating between $1,000 and $5,000 above the STH cost basis of $92,500. This level has historically been a crucial pivot, delineating the line between bullish and bearish trends.
A drop below this threshold could potentially trigger a wave of selling pressure, echoing past corrections seen after all-time highs (ATH) in May and November 2021, as well as in February and April of the previous year.
Historical correction patterns have generally involved a rise into price discovery, followed by a consolidation phase where realized supply density increases and selling pressure escalates.
Analysis of past data implies that should bearish conditions strengthen, Bitcoin might retrace toward the lower limit of the STH cost basis model, currently set at $71,600.
The report further noted that if Bitcoin falls below the $92,500 mark, panic selling among short-term holders could exacerbate losses. However, if demand remains robust, BTC might stabilize above its ATH and create a new trading range, postponing any further downside risks.
Sentiment in derivatives
The market momentum appears to be waning, as shown by falling open interest and reducing perpetual futures funding rates.
Although funding rates for Bitcoin and Ethereum (ETH) are still marginally positive, Solana (SOL) and various memecoins have seen their funding rates drop into negative territory, indicating a shift toward a risk-averse mindset.
The contraction in open interest (OI) strengthens this risk-off sentiment, as OI in memecoins has plummeted 52.1%. In contrast, Bitcoin’s OI has decreased by approximately 11.1%.
The significant drop in memecoin OI illustrates a swift exit of speculative capital, indicating that traders are pulling back from riskier investments amid increasing market volatility.
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