Bitcoin Shows First Bottom Signal, but Risk of Further Pullback Remains
Summary
- An analysis said the first bottom signal has appeared in the on-chain UTXO Block Profit/Loss Ratio model, though the market has yet to confirm a final low.
- It said the 365-day moving average must fall more sharply and reset the long-term profit-loss structure before the market can be judged to have formed a structural bottom.
- The analyst said a short-term short squeeze remains possible if leveraged short positions become overcrowded, but that would not amount to a structural recovery, while the risk of further pullbacks and market stress remains.
Forecast Trend Report by Period
Bitcoin’s on-chain data is showing an initial sign of a bottom as the market undergoes a cleansing process, according to a CryptoQuant analysis. The signal does not mean a final low is in place, however, and further downside may be needed before the bearish phase runs its course.
MorenoDV, a CryptoQuant contributor, wrote in a QuickTake report on June 29 that Bitcoin is beginning to show “the first clear sign of a deeper market cleansing.”
The indicator he highlighted was Bitcoin’s UTXO Block Profit/Loss Ratio model. UTXO refers to unspent transaction outputs on the Bitcoin network. The metric compares the ratio of coins in profit to those in loss, showing how broad the remaining profit base is beneath the current market.
A high reading means most holdings are still in profit. That leaves a large pool of unrealized gains in the market and raises the risk that investors will take profits.
When the ratio drops into a lower range, profitability compresses and the share of loss-making holdings widens. That suggests the market is moving beyond a short-term pullback and into a broader reset phase.
MorenoDV said Bitcoin’s profit-loss ratio has now fallen to levels seen during past bottoming processes. But he added that this does not mean the bottom has already formed.
A stronger bottom signal would require the 365-day moving average to decline more sharply. That would show the long-term profit-loss structure has been properly reset, making the move a structural bottom rather than a temporary oversold signal.
“Bitcoin may need more pain before it can fully exit the bearish phase,” he wrote.
The analyst also left room for a short-term rebound. If leveraged short positions become excessively crowded, a short squeeze could trigger a temporary advance. Still, he said such a move would not necessarily signal a structural recovery.
MorenoDV said it was encouraging that a meaningful cleansing process had begun within the Bitcoin market. But based on past patterns, he added that the market may still need to absorb further stress before the bearish phase is fully exhausted.
Minseung Kang
minriver@bloomingbit.ioBlockchain journalist | Writer of Trade Now & Altcoin Now, must-read content for investors.