Bitcoin (BTC) is showing early indications of a potential deeper correction, with its latest recovery stalling around the $93,000 mark. New analysis suggests that Bitcoin's current market structure bears a striking resemblance to the conditions observed in the first quarter of 2022, a period that preceded the onset of a significant bear market.
Onchain Data Signals Potential Bear Market Onset
According to onchain data provider Glassnode, Bitcoin has recently retreated and found support near its True Market Mean, which is currently situated at $81,500. The True Market Mean, also referred to as the Active-Investor Price, represents the cost basis for all non-dormant coins, excluding those held by miners.
Glassnode stated in its latest Week On-chain report, "This level often marks the dividing line between a mild bearish phase and a deep bear market." The report further elaborated, "Although price has recently stabilized above this threshold, the broader market structure is increasingly echoing the dynamics of Q1 2022."
Although price has recently stabilized above this threshold, the broader market structure is increasingly echoing the dynamics of Q1 2022.
The historical data indicates that the BTC/USD pair traded above this level from January 22, 2022, to May 5, 2022. Following a drop below this critical level on May 6, Bitcoin experienced a further decline of 61%, ultimately bottoming out at $15,500 in November of that year.
This observed similarity is further supported by a Supply Quantiles Cost Basis model, which tracks the entry price of significant coin clusters. Since mid-November, Bitcoin's price has fallen below the 0.75 quantile, currently trading near $96,100. This position means that over 25% of the Bitcoin supply is now trading at a loss.
Glassnode noted, "This has created a highly fragile balance between the risk of top-buyer capitulation and the potential for seller exhaustion to form a bottom." The firm added, "The current structure remains highly sensitive to macro shocks until the market can reclaim the 0.85 quantile (~$106.2K) as support."
The current structure remains highly sensitive to macro shocks until the market can reclaim the 0.85 quantile (~$106.2K) as support.
CryptoQuant's Bull Score Index provides a more granular perspective. This metric has seen a sharp decline since August and dropped below 40 in October. Despite short-term price volatility throughout November, the index has remained relatively flat. The latest reading falls within the 0-20 range, indicating deeply bearish conditions, which is comparable to the levels observed in January 2022, as depicted in the accompanying chart.
As previously reported, Bitcoin's price action is exhibiting several other parallels with the bear market of 2022.
Bear Flag Pattern Suggests Potential Drop to $68,000
Data from Cointelegraph Markets Pro and TradingView indicates that Bitcoin's most recent recovery attempt encountered significant resistance around the $93,000 level. This price point aligns with the yearly open and the upper boundary of a bear flag pattern, as illustrated on the two-day chart.
A confirmed break and close below the lower boundary of this flag, set at $91,000, would validate the bear flag pattern. Such a development could initiate a new downtrend, targeting the pattern's measured objective of $68,150, which also corresponds to the previous all-time highs from 2021. A move to this level would represent a total loss of 27% from the current price.
Momentum indicators, including the relative strength index (RSI), remain subdued at a reading of 40. This suggests that current market conditions continue to favor downside movements.
As previously noted, the bearish pattern would be invalidated if bulls manage to push the price above $96,000, especially if this upward movement is supported by a positive Coinbase Premium.