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Is Bitcoin Headed for Another Crash? Key Indicators Signal Possible Downtrend

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Is Bitcoin Headed for Another Crash? Key Indicators Signal Possible Downtrend

Bitcoin Struggles Below $84K Amid Weak Demand and Bearish Signals

Bitcoin (BTC) made a strong move early on March 12, briefly touching $83,700 before facing resistance at the $84,000 level. This comes after dipping to $76,600 the previous day. With demand appearing weak and technical indicators flashing warning signs, traders are questioning whether another price drop is on the horizon.

Bitcoin Demand Remains Low as ETF Outflows Surge

One of the key factors dragging Bitcoin's price lower is the ongoing outflow from spot Bitcoin exchange-traded funds (ETFs). Since late February, these outflows have exceeded $1.5 billion, contributing to the decline in price.

Adding to the concerns, market data from CryptoQuant suggests that Bitcoin’s apparent demand remains low, signaling a reduced risk appetite among investors.

What does "apparent demand" mean?

  • It is the difference between Bitcoin production (newly mined BTC) and inventory changes (long-term holders moving their supply).
  • If production outpaces inventory reduction, apparent demand weakens.

After a strong surge in late 2024, partly driven by Donald Trump’s election victory, Bitcoin’s apparent demand has sharply declined. It plummeted from 279,000 BTC on December 4 to just 10,000 on February 26. The metric turned negative on February 27 for the first time since September 2024 and currently sits at -93,700 BTC.

A similar pattern was seen in July 2024, when apparent demand hit comparable levels, leading to a 30% price drop to $49,000 in early August.

That said, this metric isn’t always a perfect predictor of future price moves. In late May and October 2024, it turned negative before Bitcoin went on to rally by 7% and 73%, respectively.

Bearish Valuation Metrics Point to Further Decline

Despite bouncing 7% off its recent low, Bitcoin’s valuation metrics suggest that the recovery may be short-lived. Data from Cointelegraph Markets Pro and TradingView highlight concerning trends:

  • The Bitcoin bull-bear market cycle indicator has reached its "most bearish level" of the current cycle.
    • This metric compares the P&L Index to its 365-day moving average.
    • A value below zero indicates a bear market, and the current reading of -0.067 is the lowest since May 2023.
  • The MVRV ratio Z-score, a tool used to determine if Bitcoin is overvalued or undervalued, has dropped below its 365-day moving average.
    • Historically, when this happens, Bitcoin either experiences a sharp correction or enters a bear market.

Technical Patterns Suggest Bitcoin Could Drop to $68,400

From a technical perspective, Bitcoin is trading within a bear flag pattern, a bearish continuation setup that signals potential further downside.

  • The bear flag formed after Bitcoin fell from $92,000 to $76,600 between March 6 and March 11.
  • BTC is currently consolidating in an ascending parallel channel, testing critical support at $82,000.

If Bitcoin breaks below this level, the bear flag’s projected downside target sits around $68,400, representing a 17% decline from the current price.

Meanwhile, CryptoQuant analysts warn that if Bitcoin loses support between $75,000 and $78,000, it could sink even further - possibly reaching $63,000.

While Bitcoin has surprised traders in the past with unexpected rebounds, the current mix of weak demand, bearish valuation metrics, and concerning technical patterns raises the risk of another downturn.

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