4 metrics suggest Bitcoin price will correct — But can BTC hit $20K first?
A pullback in the price of Bitcoin (BTC) is likely, based on several on-chain data points, namely the Spent Output Profit Ratio (SOPR) indicator, stablecoin inflows, stacked sell orders at $19,000, and the Crypto and Fear Index. However, the question remains when that correction would occur.
Profit-taking pullback possible with lower buy pressure
The SOPR indicator essentially gauges how profitable Bitcoin holders are at the moment. When the SOPR is high, BTC is at risk of a profit-taking pullback since traders tend to sell when they are in profit.
Meanwhile, stablecoin inflows show how many stablecoins, such as USDT Tether, are flowing into exchanges. When stablecoin inflows increase, this typically means buyer demand is rising. On the other hand, selling pressure tends to rise when BTC reserves outpace the inflow of stablecoins.
In the past several days, the SOPR indicator has reached a level that previously led the price of Bitcoin to correct such as in late 2018 and summer 2019.
On Nov. 20, Rafael Schultz-Kraft, the chief technical officer at Glassnode, noted:
“Adjusted SOPR (hourly, 7d MA) as high as it hasn’t been since July 2019. Correction incoming?”
This trend can become concerning if the momentum of Bitcoin slows. Renato Shirakashi, the creator of the SOPR indicator, said Nobel prize laureate Daniel Kahneman’s work shows investors are comfortable selling when in profit.
Hence, if Bitcoin gets stagnant or consolidates in the near term below the $19,000 resistance, a minor pullback could emerge. Shirakashi wrote:
“People, in general, are much more comfortable selling when they are in profit. In a bull market, when SOPR falls below 1, people would sell at a loss, and thus be reluctant to do so. This pushes the supply down significantly, which in turn puts an upward pressure on the price, which increases.”
The rise in the Exchange Stablecoins Ratio from CryptoQuant coincides with the rising SOPR. The Stablecoins Ratio is the Bitcoin exchange reserves divided by stablecoin reserves. When it increases, it shows that potential selling pressure is rising.
As such, CryptoQuant CEO, Ki Young Ju, expects a short-term, albeit not a big correction, in the short term. He noted:
“BTC potential selling pressure is going upwards, but still low. We’ll see some correction in a few days but it won’t be big. Long-term bullish.”
$19,000 stands in the way of a new all-time high
Exchange order books also show that the $19,000 level has become an important resistance area. There are significant sell orders across Bitfinex, Bitstamp, Binance, and Coinbase near $19,000, which might prevent the continuation of a rally.
— Byzantine General (@ByzGeneral) November 21, 2020
Another possible factor that could trigger a short-term pullback is the Crypto Fear and Greed…