Analysis of Recent Bitcoin Price Action
Bitcoin's recent decline below $90,000 may be indicative of the end of the current market correction, according to insights from Geoffrey Kendrick, head of digital asset research at Standard Chartered. Kendrick characterized the pullback as the third significant 30% correction experienced since the launch of U.S. spot Bitcoin Exchange-Traded Funds (ETFs) last year. He suggests this pattern points towards seller exhaustion.
The cryptocurrency experienced a sharp drop below $90,000 on Tuesday, extending a drawdown that had erased nearly 30% from its all-time high of over $126,000, which was set in early October. This latest decline represents the most substantial pullback observed since the introduction of spot Bitcoin ETFs in the United States.
Technical and Sentiment Indicators
Kendrick highlighted in a client note on Tuesday that the recent sell-off has been a rapid and intense version of previous corrections, exhibiting nearly identical magnitude. He stated that key sentiment and valuation metrics have been reset to levels that have historically been associated with market bottoms.
Specifically, Strategy's modified net asset value, which gauges the firm's Bitcoin holdings in relation to its share price, has fallen to parity at 1.0. According to Kendrick's analysis, this metric reaching such a level suggests a state of seller exhaustion and capitulation within the market.
Multiple indicators have now collapsed to absolute zero levels, which signals that the current sell-off might be nearing its conclusion. Based on these technical and sentiment readings, Kendrick maintains that a rally into the year-end remains his base case scenario.
On-Chain Signals and Market Bottom Formation
Analysts at Bitfinex have observed that the pace of realized losses among short-term Bitcoin holders has started to slow down. They also noted the emergence of on-chain capitulation signals, which are typically considered typical markers of a market bottom forming.
Following these indicators, Bitcoin saw a rebound to just below $93,000 on Tuesday, showing a 3.8% increase from its overnight lows.
Debate on Market Cycle and Halving Impact
The steep decline in Bitcoin's price has fueled a debate regarding whether the cryptocurrency is entering the bear market phase of its typical four-year cycle. Historically, Bitcoin undergoes a halving event approximately every four years, which is often followed by significant price drawdowns between 12 to 18 months later.
Following the halving event in April 2024, Bitcoin approached the end of this typical post-halving window in October. Some market analysts propose that the cycle might be experiencing a delay rather than an outright end. Others, however, point to historical patterns that suggest bottoms are formed after short-term holders capitulate and incur losses.
Contrarian View Amidst High Trading Volume
Standard Chartered's analysis offers a contrarian perspective, especially considering that trading volume has more than doubled in recent activity. Additionally, approximately $335 million worth of Bitcoin derivatives contracts were liquidated in the past day, contributing to higher overall cryptocurrency market liquidations across various digital assets.