Bear market warning! Market indicators show that the Bitcoin bull market may have peaked

After weeks of selling, high net worth Bitcoin holders (Bitcoin whales) have finally started buying Bitcoin again. While Bitcoin whales continue to buy Bitcoin, the number of addresses holding more than 1,000 Bitcoins has reached a 4-month support line.

The level of profit taking can be derived from the adjusted expenditure-output profit ratio (aSOPR), which measures the ratio between the selling price of a bitcoin and the price paid, without taking into account temporary volatility (fluctuations within an hour) of bitcoin.

In other words, aSOPR measures the profit (in USD) that a person would have if they sold their Bitcoin.

Profit taking has continued to find positive support at higher levels since September 2020. However, this trend may eventually come to an end. When you zoom out and look at the profit taking behavior in all previous bull markets, you will see that this is not just a one-off or short-term trend, but a long-term pattern in the Bitcoin bull market.

These support levels usually hold for 3 to 18 months. The chart below shows that historically, a break of the second support level in each bull market has confirmed the bull market has reached its top.

Not only is aSOPR close to breaking a 7-month support level, but there is also a significant divergence in the indicator’s latest pattern that could be cause for concern.

Typically, short-term tops in the aSOPR are formed at higher levels each time as prices rise further and rising confidence leads people to hold higher profits after each sell-off.

However, in the recent pattern, profits have been realized ahead of schedule in each of the selling waves over the past three months, a pattern that usually occurs after a bull market has already peaked.

Edward Moya, senior market analyst at Oanda Corp, said: "Bitcoin is trying to stabilize after plummeting into bear market territory last weekend. Institutions may see this as a buying opportunity. Bitcoin may form a new trading range between $52,000 and $62,000 in the coming weeks."

Price gains have slowed in recent months, with more short-term holders realising profits.

The HODL wave visualizes the time Bitcoin is held. The redder the color, the shorter the holding period. It can be seen that short-term holders who hold Bitcoin for one week to three months have mainly sold Bitcoin to the market recently.

If we only look at the profit-taking behavior of short-term holders, we can infer that this group of traders is almost done selling. The recent decline is below 1, indicating that short-term holders have begun to realize losses.

Bull market tops are not formed due to a lack of sellers, but rather a lack of buyers, so it is very important to also pay attention to the current trend on the demand side. The current on-chain volume activity shows that the trend of capital inflows remains intact.

A large amount of Bitcoin is still changing hands, which indicates that buying activity is still ongoing. The steep curve indicates high on-chain transaction volume. If it is followed by a flat trend, this usually indicates the beginning of a bear market because not enough buyers are entering the market. As long as this steep curve does not flatten, there should be no concern about the reduction in the number of buyers.

A breakout of the 10-day moving average of aSOPR could be confirmed in the coming days, which could signal a trend shift in seller behavior from bullish to bearish. Therefore, if this occurs, a negative short- to medium-term scenario should be considered.

There are two major price support levels to watch out for. The first is around $51,325, which could be a support level where Bitcoin whales have been acquiring large amounts of Bitcoin recently. The second price support level is the Network Value to Transactions (NVT) ratio price, which is currently at $47,679 and is a major price support level for Bitcoin bulls.

If the market price is significantly below the NVT price and does not recover quickly within a few days, a detailed analysis of the demand side is needed to determine whether the bullish structure of the market has been broken.

On the demand side, there are still enough users willing to pay the current price, and Bitcoin whales have increased their purchases again. The current price action remains above the NVT price, which suggests that the current price action is still within the expected bullish zone.

“This is only a brief loss of bullish momentum, but we think a couple of consecutive closes below the 50-day moving average would be enough to get us off the sidelines,” Katie Stockton, technical analyst and managing partner at Fairlead Strategies, said on Twitter.

“If bitcoin prices don’t break above $60,000 soon, given their still elevated levels, the upward momentum signals will naturally fade within a few months,” analysts at JPMorgan Chase & Co. wrote in a note this week.