Despite the bearish tone seen over the past weeks, Bitcoin [BTC] continues to retain rebound potential. Especially since critical conditions influencing its price action remain unresolved.
In fact, on-chain data indicated that while the crypto’s price has declined, there is still no confirmation that bears have fully taken over the market. Instead, signs of lingering bullish presence remain and this could influence price dynamics as conditions evolve.
Key on-chain conditions keep Bitcoin at a crossroads
At the time of writing, Bitcoin’s Net Unrealized Profit and Loss (NUPL) metric underlined a notable dynamic that could influence the crypto’s next directional move.
The Adjusted NUPL, which compares the realized capitalization of short and long-term holders against Bitcoin’s market capitalization, has reached a level historically associated with prices exiting prolonged bearish phases.
This zone, often referred to as the fear and anxiety level, has played a role in shaping Bitcoin’s broader trend in previous cycles. However, it did not confirm a reversal.
Instead, it suggested that bulls continue to hold their Bitcoin without realizing significant profits or losses, even when accumulation might be underway.
That said, the possibility of profit or loss realization remains. If such activity emerges, it could trigger further downside pressure, favoring short positions already in the market as well as bearish participants waiting for confirmation.
As a result, Bitcoin remains at a critical inflection point – One where neither bulls nor bears hold a decisive advantage. To better assess which side could gain control, AMBCrypto also examined additional market indicators.
Risk metric at a potential shift
Bitcoin’s Sharpe Ratio, a metric used to measure risk-adjusted returns, has fallen into a zone that has historically supported price rebounds.
At press time, the ratio had dropped below the zero-mark, a level reached only four times since 2018. In previous cycles, this territory has often preceded the formation of a market bottom.
However, such a signal did not quite identify an exact bottom. Instead, it suggested that the probability of a rebound may be increasing. A prolonged decline in the Sharpe Ratio remains possible and could persist for months though, potentially exerting sustained downside pressure on price.
Exchange Reserve data provided some additional context too.
Rising exchange reserves typically indicate greater selling intent as investors move assets onto exchanges. On the contrary, declining reserves mean that investors might be withdrawing Bitcoin to private wallets for longer-term holding.
Bitcoin’s exchange reserves have been trending higher, rising to 2.73 million BTC from 2.71 million BTC on 19 January. Such a hike may be indicative of growing short-term selling pressure.
While the broader structure remains constructive, the short-term outlook could stay bearish until exchange reserves begin trending lower.
Bitcoin Season Index leans towards early bull
Market seasonality remains a key determinant of investor positioning, with press time data showing a gradual tilt towards Bitcoin dominance.
For example – The Bitcoin Season Index, which begins at the 25-level, stood at 29 and has remained largely flat in recent sessions. Such sideways movement could allude to investor indecision, with sentiment hovering between cautious bearishness and early bullish positioning.
A sustained move higher from this range would signal renewed capital rotation into Bitcoin and could support a stronger upside move – Reinforcing the developing bullish narrative.
Final Thoughts
- Bitcoin has not entered a confirmed bearish phase, with key conditions still unfulfilled that could shift momentum back toward the bulls.
- The Bitcoin Season Index is approaching bullish territory and may offer additional support if momentum improves.
