On-Chain Metric Signals the Bitcoin Market Isn't Overheated: Why This Is Bullish

On-Chain Metric Signals the Bitcoin Market Isn’t Overheated: Why This Is Bullish

Nick Chong

Last Updated: June 11, 2024 11:27 am

3 mins read

Reason to trust

Strict editorial policy that focuses on accuracy, relevance, and impartiality

Created by industry experts and meticulously reviewed

The highest standards in reporting and publishing

How Our News is Made

Strict editorial policy that focuses on accuracy, relevance, and impartiality

Ad discliamer

Morbi pretium leo et nisl aliquam mollis. Quisque arcu lorem, ultricies quis pellentesque nec, ullamcorper eu odio.

Despite the recent stagnation, Bitcoin is still up by over 150% from the capitulation lows of March’s crash. By the standards, that means that BTC’s nascent market is at exuberant levels — especially considering the dismal state of the world economy.

Chart of BTC's price action since the start of the year from TradingView.com

But on-chain data shows that BTC is not yet in an “overheated” market, leaving room for the leading cryptocurrency to appreciate in the months ahead.

On-Chain Fundamentals Show Bitcoin Has Room to Rally

With Bitcoin flatlining, it’s been hard for some analysts to purely use technical analysis to determine which way the asset will break next. Some market commentators have thus turned to on-chain analytics to indicate which way BTC will move next.

According to data from WhaleMap shared by a cryptocurrency technician, the profitability of traders has gone down rapidly. Referencing the chart below, which indicates that the “moving profits” metric is decreasing, the analyst wrote:

“The amount of people in profit is going down rapidly. This is good, it means the market isn’t overheated anymore. Usually when everyone is making money the market starts shaking everyone out. This chart shows enough shaking has been done.”

Chart of the profitability and unprofitability of cryptocurrency traders coupled with the Bitcoin price from WhaleMaps.io, shared by Byzantine General.

In saying this, the trader is referencing how markets often move against the majority — the “herd.” To put this into the context of the chart above, the fewer Bitcoin investors there are in profit, the less likely the market will punish bulls.

Further corroborating the sentiment that Bitcoin bulls are currently not overextended is derivatives data.

A good indication of the overall sentiment of derivatives traders is the funding rate of BTC perpetual swap markets.

Data from BitMEX indicates that the funding rate of Bitcoin perpetual swaps is approximately flat. This indicates that neither long holders nor short holders are overextended,

Growing Number of BTC Bulls

These positive signals come as Bitcoin has garnered the support of an increasing number of seasoned investment analysts.

As reported by NewsBTC previously, Kyle Bass – the CIO of Hayman Capital Management – said in a recent tweet that he expects BTC to surge higher with gold and silver:

“Silver, Gold, Bitcoin, etc all look to be ready to make explosive moves higher given the sheer amount of money printing going on around the world.”

Bass’ support of the leading cryptocurrency comes shortly after Lyn Alden, a prominent investment strategist, said in an extensive blog post that she is buying BTC.

Alden attributed her optimism to three trends: Bitcoin’s strong network effects that allowed it to fend off altcoins, scarcity mechanisms like the block reward halving, a macro environment promoting the value of scarcity.