A Bitcoin price drop can be viewed as a healthy correction by analysts in the cryptocurrency market. Corrections are normal occurrences in financial markets and are often seen as a natural part of the price discovery process. Here are a few reasons why analysts might consider a correction healthy:
1. **Price Stabilization:** Periodic corrections can help stabilize prices by preventing unsustainable rapid growth, which may be followed by sharp declines.
2. **Market Reset:** Corrections can reset market conditions, providing an opportunity for new participants to enter or for existing investors to reassess their positions.
3. **Long-Term Health:** A market that experiences gradual and healthy corrections may be considered more sustainable over the long term.
4. **Shaking Out Weak Hands:** Corrections can shake out weak-handed investors or speculators who may have entered the market during periods of excessive optimism.
It’s crucial to note that market dynamics can be complex, and corrections can also be influenced by various factors such as market sentiment, regulatory developments, and macroeconomic trends. Analysts usually evaluate a combination of technical and fundamental factors to assess the overall health of the market.
Investors should conduct their own research, consider multiple perspectives, and be aware of the risks associated with cryptocurrency investments. Markets can be unpredictable, and opinions may vary among analysts.
Bitcoin price opened the week with a sharp decline, but technically indicates the need for a correction period. Bitcoin price fell -8.4% in 24 hours on December 11, 2023.
Despite the sharp price correction, technical indicators and on-chain data show that Bitcoin is still showing strength and buyers are trying to push the price back above US$44,000.
On-chain Data Shows BTC Price Overbought
BTC price fell -8.4% from US$43,832 to US$40,132, sparking discussion among crypto analysts. Julio Moreno, head of research at on-chain analysis firm CryptoQuant, said that Bitcoin prices are in an overbought phase after rallying above the US$40,000 level.
Further data from on-chain data analysis firm Lookintobitcoin highlights the BTC price saturation phase. According to a December 2023 report, BTC price has reached its short-term target golden ratio multiplier indicating the need for a correction.
Image: Golden ratio multiplier indicator. Source: Lookintobitcoin
The golden ratio multiplier is an indicator that explores the Bitcoin adoption curve and market cycles to understand how the price may behave over medium to long-term time frames. In other words, Bitcoin reached an overbought condition above US$40,000.
Bitcoin Price Faces Strong Resistance Around US$44,000
The US$44,000 price level looks like resistance for Bitcoin, this is confirmed by on-chain data from the in/out of the money around price (IOMAP) model. According to the IOMAP chart, this level is in the price range of $43,346–$44,627, where about 585.77 BTC was previously purchased by about 1.43 million wallets.
Any attempt to push the price above this level will likely be met with massive selling from this group of wallets, who may want to exit the market at breakeven. Therefore, the US$44,000 level can be said to be resistance.
Bitcoin Potentially Maintains Uptrend
The ongoing correction can likely be considered a bear trap, as this decline is most likely just a healthy correction in the bullish trend since early November 2023.
In addition, data from Santiment shows that Bitcoin outflows from exchanges are increasing. There was a netflow of BTC of -347 BTC. The negative sign indicates BTC outflow is outstripping inflow, indicating that investors are more likely to hold rather than sell, which is a bullish sign.
This suggests that the recent decline towards US$40,000 may be a short-term correction that provides traders with an opportunity to buy more on the price dip before resuming the uptrend.
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