Some on-chain indicators are flashing signs that Bitcoin (BTC) may be overheating following its rally to the $64,000 price mark, indicating a significant correction could occur soon.
According to a weekly report from market intelligence firm CryptoQuant, the rising traders’ unrealized profit margin and the high cost of opening new long positions in perpetual futures markets suggest the emergence of a pause or correction in BTC’s price.
Since the beginning of this week, the bulls have taken charge of the market and driven BTC up by more than 25%, pushing the digital asset to levels not seen since November 2021. Bitcoin has rallied from under $52,000, crossed $60,000, and was trading at $62,600 at writing time after pullback from $64,000.
CryptoQuant analysts say the price increase is driven by high BTC demand from U.S. investors, evident in a rise in the Coinbase premium index to 0.13%, the highest since mid-February.
The high demand for BTC is coming from larger entities, whose holdings have increased to 3.975 million BTC, a level last seen in July 2022. The current holdings of such investors, which are entities who have accumulated 1,000 to 10,000 BTC, represent a significant growth from December 2022 lows of 3.694 million BTC.
Additionally, fresh capital inflow into the Bitcoin market, measured by the short-term holder realized capitalization, has increased by 10% from the 25% recorded in October 2023. The fresh inflows currently represent 35% of the total money invested in the network.
While demand for BTC soars, the asset is prone to correction any moment from now. BTC’s price has surpassed $56,000, a previously identified short-term target based on network activity valuation. The price represents the red Metcalfe Price Valuation Band, which served as a resistance level in April and November 2021 and April 2022. Analysts said a correction could occur around the price.
On top of that, opening new long positions in the perpetual futures markets has become expensive, and traders’ unrealized profit margin is at 32%, a few inches away from 40%, which is known to trigger a price correction.
Meanwhile, the Miner Profit/Loss Sustainability metric suggests that BTC’s price is not overheated as miners are still extremely underpaid, although at a rate lower than in early January when BTC was worth $38,000.