- Bitcoin holders were still profitable, threatening more selling pressure if market uncertainty continued.
- The predicted decline in the MVRV ratio could cause Bitcoin price to fall below the key support level at $59,000
Bitcoin [BTC] recorded a decline in demand in April. Demand growth and ETF inflows have been declining, although BTC ETF inflows have reached an impressive $555 million since the start of the month.
The lack of movement in BTC raised doubts among investors.
Last week's decline resulted in $84 million outflows from US spot Bitcoin ETFs. This resulted in a 22% decline in assets under management (AUM) of Bitcoin-linked funds.
Two on-chain metrics suggested that we could be in for a major correction.
The theory of mean reversion and the need for a reset in Bitcoin
A CryptoQuant Insights post used the MVRV and Bollinger Bands to theorize that a 20% correction is coming for Bitcoin. The user combined the MVRV ratio on CryptoQuant with Bollinger Bands.
The bands are a mean reversion indicator. When the extremes of the band are broken, there is usually (but not every time) a movement toward the mean.
Source: CryptoQuant Insights
The analyst noted on the chart that the ceiling was recently broken, but the MVRV ratio was back within the bands. This suggested that it would decline to the 365-period moving average.
Such a reversal would mean a 20% drop in the price of Bitcoin. The MVRV ratio, which is at 2.23, would be closer to 1.7 and such a retracement would be completely normal.
It could be the type of reset that BTC has experienced multiple times during bull markets.
The SOPR emphasized that long-term holders are moving
Source: CryptoQuant
The spent output profit ratio (SOPR) indicates how profitable market participants are. The 7-day EMA peaked at 3.7 on March 23 and has fallen sharply since then.
This showed that BTC holders made a decent profit even after the recent selling pressure.
In value terms, the current situation was similar to the SOPR peak in July 2019, when the market rejected at a value of 4.2. But now the circumstances are different.
At that time, a bear market rally was coming to an end, while now we are witnessing the beginning of a bull market.
Read Bitcoins [BTC] Price prediction 2024-25
Alternatively, the SOPR decline could also indicate a temporary high for Bitcoin. The market would need time to consolidate and absorb the selling pressure from anxious participants and profit-takers.
If this scenario comes true, it would be accompanied by the MVRV Bollinger Bands signals.
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