Bitcoin surged by 7.96% in the past week, according to CoinWorld. The market fundamentals indicate that Bitcoin may soon undergo a market correction. As anticipated, Bitcoin has experienced a strong October. Despite a rough start to the month, the cryptocurrency’s gains have significantly outweighed its previous losses. Since reaching a low point of $58,867, BTC has seen a strong rise, reaching $69,000 in July. In fact, at the time of writing, Bitcoin’s trading price is $69,028, which is a 7.96% increase in the past week and a 9.52% increase on the monthly chart.
The recent surge has left analysts both optimistic and pessimistic. For instance, CryptoQuant analyst Burak Kesmeci referred to the NVT Golden Cross, suggesting that Bitcoin may experience a market correction. In his analysis, Kesmeci believes that Bitcoin’s NVT Golden Cross has entered a hot zone in the short term. He explains that the market will eventually go through a pullback before attempting another upward trend. For those unfamiliar, the NVT Golden Cross reaching a hot zone indicates that BTC is currently overpriced compared to its network activity. Therefore, it has been overvalued relative to the value transferred on the blockchain. This implies a potential overbought condition where price growth is not supported by fundamental network usage. These situations typically occur before a price adjustment, as the market realigns the price with the network fundamentals. Based on this analogy, Bitcoin is expected to experience a pullback in the short term.
As observed by Kesmeci, the current fundamentals do not support a sustained rebound and may result in a decline to meet demand. Therefore, the question is how sustainable the current rebound is and what do market indicators indicate? The first indicator to consider is Bitcoin’s NVT ratio, which measures the ratio of network value to transactions. According to CryptoQuant data, the NVT ratio has been consistently rising in the past week. This growth suggests that BTC is overvalued compared to actual utility and network activity, making the current price unsustainable. Additionally, Bitcoin’s stock-to-flow ratio has decreased in the past week, indicating an increase in supply. An increase in BTC availability often leads to a bearish market sentiment, especially when demand has not grown. Lastly, Bitcoin’s Price DAA Divergence has remained negative in the past week, indicating that the price increase is unsustainable. When the DAA price is negative, it signifies that the current rebound is driven by speculation or short-term demand.
In summary, despite BTC surging to recent highs, the market fundamentals indicate an impending pullback. Therefore, the current rebound is primarily driven by speculation rather than supported by demand. Once corrected, Bitcoin is expected to drop to a support level of $65,872.
