Bitcoin [BTC] saw an increasing long/short ratio once again, noted analytics platform Alphractal in a post on X. This signaled increased interest from traders to go long.
While this is a common occurrence by itself, the Long/Short Ratio has remained elevated for months now. When the BTC Long/Short Ratio is above the altcoins’ Long/Short Ratio, it’s a perfect buy signal for the former.
This pattern has been broken over the past few months, for the first time. The clear-cut buying opportunity has not translated into profits.
Founder and CEO of the platform, Joao Wedson, pointed out that leveraged traders could be hampering recovery attempts.
Will we see a recovery or a Bitcoin bear market?
Axel Adler Jr laid out what the triggers would be for a Bitcoin trend reversal. The first trigger was the Bitcoin supply in profit. It had peaked at 19 million BTC in October, to <13.5 million BTC now.
The 30SMA and 90SMA of supply in profit had a 1.75 million BTC difference, a similar setup to 2022. Back then, an extended bearish phase had followed.
To prevent a similar outcome, BTC bulls must hold prices at the current range to keep the supply in profit above the 30SMA.
The analyst pointed out that this 1.75 million BTC gap was reducing by 28k BTC per day. If these dynamics persist, a bullish cross is projected for late February/early March.
It must be noted that this cross forecast would be valid only so long as Bitcoin prices hold above $75k-$80k in January.
Examining the Bitcoin price action similarities across cycles
In 2021, the weekly structure of Bitcoin shifted bearishly as the price fell below the moving averages to signal a long-term trend shift. A bounce to the 50-week MA was seen before the bear market took hold.
A similar scenario was brewing once again. A weekly bearish structure shift followed by a drop below the weekly moving averages. It appears likely that we will see a price bounce to the $101k-$103k resistance zone.
Thereafter, the bear market would likely take hold, especially if BTC falls and stays below $75k in January.
Final Thoughts
- The multi-month elevated long/short ratio was an anomaly that suggested traders were positioning for a breakout, but were met with no success.
- If Bitcoin is trading above the $75k-$80k range in January, there is a chance that the volatility was a violent reset of the larger bull cycle.
