Bitcoin is at risk of a sharp correction as on-chain data indicates that leverage is the reason for the recent price increase.
Bitcoin's price has risen
significantly in recent days, but the increase appears to be driven by leverage
as network activity continues to deteriorate. These conditions increase the
likelihood of a sharp correction in the near future.
Is Bitcoin’s Upward Price Action Sustainable?
Bitcoin has gained bullish momentum in the last nine days, but on-chain data suggests that the recent surge is not sustainable.
Since July 12, the top cryptocurrency has increased by more than 26%, going from a low of $19,230 to a high of $24,280. There are grounds to think that the current market movement may not last long, despite the fact that Bitcoin seems to have more room to rise.
This month, the number of open long and short BTC positions on all major crypto derivatives exchanges has steadily increased. Since July 12, approximately 1.44 billion positions have been opened, contributing to the price increase.
Such market behavior suggests that the futures market is attracting liquidity and interest, but on-chain data show that the Bitcoin network has not experienced the same surge in demand.
The number of addresses holding at least 1,000 BTC has progressively fallen over the past few months. While the value of Bitcoin has surged by 5,050 points since July 12, some alleged "whales" have divided or sold some of their possessions. 30 addresses, each holding more than $23 million in BTC, may have left the network, according to on-chain data.
Miners appear to have taken advantage of recent price increases to book some profits. Since July 12, the amount of Bitcoin held by affiliated miners' wallets has decreased by nearly 1%. These miners have sold approximately 13,850 BTC worth over $318 million in the last nine days.
Inflows into Bitcoin held on trading platforms have also increased since July 12. According to Glassnode data, over 27,030 BTC worth over $621 million has been deposited on known cryptocurrency exchange wallets. The growing amount of BTC held on exchanges suggests that selling pressure is increasing behind the top cryptocurrency.
While it appears that Bitcoin whales and miners are selling their holdings, the number of new daily addresses created on the network is decreasing. This suggests that at the current price levels, there is a lack of interest in Bitcoin among sidelined investors. Network growth is frequently regarded as one of the most accurate price predictors, and a steady decline usually results in a steep price correction over time.
The rise in open interest, combined with a decline in network growth and rising selling pressure from whales and miners, suggests that Bitcoin's recent price rise is being driven by leverage. These network dynamics raise the likelihood of a steep correction.
Nonetheless, Bitcoin's transaction history shows that it is currently sitting on top of stable support, which may limit its downside potential.
Approximately 630,000 addresses previously purchased 524,000 BTC between $20,220 and $20,900, according to Into the Block data. This demand zone must hold in the event of a downturn to avoid large losses. If Bitcoin fails to hold this level, a sell-off could send it to the next major support level, which is around $16,000.
To advance higher, Bitcoin would most likely need to print a daily candlestick close above $23,660. Overcoming this critical resistance level could propel BTC toward $25,000 or even $27,000. However, as long as whales and miners continue to sell and network growth slows, the risk of a steep correction remains.
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