🥵 Is it Time to Sell Bitcoin? What the Indicators Say!

This article provides an in-depth analysis of various Bitcoin metrics to determine if it's currently time to sell or if more upside is expected by year-end. The analysis comes after Bitcoin surpassed $10,000, prompting questions about its peak. The author examines several indicators, some of which presented surprising results, to provide data-driven answers. Key metrics discussed include funding rates, exchange reserves, long-term holder supply, supply age bands, ahash flow sentiment, stablecoin ratio channels, liquidation heatmaps, the Fear & Greed Index, and addresses in profit and loss. The overarching conclusion suggests a potential short-term pullback due to an overheated market, but a continued long-term bullish trend, primarily because long-term holders are not yet distributing their assets significantly. The analysis also explores potential pullback scenarios and links future price movements to anticipated interest rate cuts by the Federal Reserve.

Funding Rates

The funding rate is a crucial metric, particularly for members of the "Shark" channel, and is updated weekly. Historically, negative funding rates during a bear run were a strong indicator of impending price increases. A negative funding rate incentivizes traders to hold long positions, as short positions pay them. On July 1st, a surprisingly negative funding rate was observed, signaling a positive outlook. However, with the recent price surge, the funding rate has reached its highest value since January. This significantly positive funding rate reduces the incentive for traders to maintain long positions, leading to potential price tops driven by market euphoria. While previous cycles had more pronounced funding rate spikes, the current cycle shows less aggressive movements. Despite this, the current funding rate is elevated compared to recent weeks, suggesting a cautious stance.

"Found rating spike to 0.019, 019. So it means that every eight hours, long positions pay 0.01% of the position to maintain the position."

This means that at $0.019, long positions are paying $0.01 of their position every eight hours to maintain it, which is the highest rate since the beginning of the year, signaling caution.

Exchange Reserve

The Exchange Reserve indicates the amount of Bitcoin held on exchanges. After a period of significant declines, there has been a noticeable increase in the Exchange Reserve. Approximately 10,000 Bitcoins entered exchanges between July 10th and 14th, with today's data still incomplete. This influx of Bitcoin into exchanges generally signals an incentive for selling, suggesting a potential for a short-term price pullback. The author expressed significant surprise at this particular indicator. This suggests that some holders might be moving their Bitcoin to exchanges with the intention of selling, which could exert downward pressure on the price.

Long-Term Holders Supply

The Long-Term Holders Supply metric tracks the number of coins held by investors who have accumulated Bitcoin for more than 155 days. Historically, as prices ascend into the more euphoric stages of a bull run, long-term holders begin to sell their Bitcoin to realize profits. During market downturns, they re-accumulate. The current cycle saw a process of re-accumulation during the price decline, followed by a third wave of accumulation peaking around June 15th-20th, when long-term holder positions began to show a slight decline. However, a deeper analysis reveals a surprising truth: the supply held by long-term holders is not significantly decreasing. A minor dip represented 92,000 Bitcoins, equivalent to almost $10 billion. This distribution includes movements of very old Bitcoins, such as 80,000 from 2011 and 17,000 from 2019, which were more likely consolidations rather than outright distributions. If these specific whale movements are excluded, the net change in long-term holder supply is either positive or a very small negative (12,000 Bitcoins). This negligible distribution is in stark contrast to previous cycles, where distributions amounted to millions of Bitcoins well before price tops. For instance, between January and May 2024, 1.5 million Bitcoins were distributed, and between October 2004 and March 2005, 1.8 million. The current lack of aggressive distribution by long-term holders is considered "strangely positive," indicating potential for continued long-term growth.

Supply Age Bands

The Supply Age Bands metric categorizes the Bitcoin network's supply by the age of its coins. Different colors represent different age ranges (e.g., 10 years, 5 years, 4 years, etc.). During bull markets and cycle tops, there's usually a significant increase in the movement of Bitcoins younger than three months or one month. When older Bitcoins are moved, they transform from being held by long-term holders into short-term holders, indicating either profit-taking or new investor entry. The current supply age bands show relatively low movement of older coins becoming newer, indicating a lack of significant distribution. The network is becoming more "diamond hand," meaning investors are holding for the long term. This suggests that despite the recent price increase, there isn't a large-scale sale of old coins, which supports a bullish long-term outlook.

Net Unrealized Profit/Loss (NUPL)

The Net Unrealized Profit/Loss (NUPL) is an indicator that tracks the aggregate profit or loss of the Bitcoin network. Currently, almost 100% of the network’s addresses are in profit, and 0% are in loss. While this might seem euphoric, the actual size of the profit being held by the network is slightly less compared to the peaks seen in November or during the all-time highs of March and late last year. This suggests that while everyone is in profit, the level of overall euphoria is not as extreme as, for example, the previous bull market peaks. Bitcoin can remain in this "all-profit" state for some time, but historically, it's unsustainable for extended periods. A pullback is expected to rebalance this metric, even if the price continues to rise in the short term. This indicator underscores the need for a healthy market correction to rebalance investor sentiment and profit levels.

Ahash Flow Sentiment

The Ahash Flow Sentiment tracks the capital flow sentiment within the network, particularly reflecting the behavior of "smart money"—long-term and larger investors. While some distribution processes occur, this metric currently appears relatively calm compared to December, although it is steadily rising with Bitcoin's price. It hasn't reached extreme distribution levels, but it is at 75, with 81 being historically indicative of a top. This suggests that while smart money isn't aggressively selling, their sentiment is moving towards caution as the price increases. The metric indicates that distribution from major investors is not yet at a critical level, but it is certainly trending upwards, warranting careful observation.

Stablecoin Ratio Channel

The Stablecoin Ratio Channel is considered a highly insightful indicator, representing the relationship between Bitcoin's market capitalization and the market capitalization of stablecoins. When Bitcoin's market cap significantly overshadows stablecoins, it suggests a market top due to limited remaining liquidity to flow into Bitcoin. Conversely, a high stablecoin market cap relative to Bitcoin indicates a market bottom. In the short term, Bitcoin reached a "local top" level, indicating it is overbought relative to stablecoins, hinting at a potential pullback. However, the long-term perspective of this metric, while showing an upward trend, has not yet reached an oversold state, suggesting that a major cycle top is not imminent. This distinction between short-term overheating and long-term potential is crucial for understanding current market dynamics.

Liquidation Heatmap

The Liquidation Heatmap illustrates the amount of money at different price levels and the sizes of long and short positions. A significant gap has recently opened between long and short positions, the largest since at least September 2024. While a massive liquidation of short positions has occurred, the market is currently "unbalanced." The author views this imbalance as unhealthy because too many participants are betting on the same outcome (long positions). Historically, when the herd moves in one direction, a market reversal often follows. This suggests a likely short-term correction, potentially to as low as $108,000, to liquidate some long positions and rebalance the market before further ascent. There's significant resistance around $125,000, but a pullback is deemed necessary for healthier market conditions.

Fear & Greed Index

The Fear & Greed Index, a key sentiment indicator, has recently moved into "extreme greed" territory. Although it can stay in extreme greed for some time, it serves as a significant alert. When combined with other indicators like the long positions dominating the liquidation heatmap, the extreme greed sentiment raises a red flag. The current market is characterized by collective overconfidence, prompting a cautious outlook. The author believes this combination suggests an imminent, at least short-term, pullback to normalize market sentiment.

Retail Activity

Surprisingly, there is almost no retail activity in the current Bitcoin market, unlike the end of last year or May of this year when Bitcoin reached $110,000-109,000. The current price movements are primarily driven by institutional buying, including investments via ETFs and corporate purchases. This absence of retail participation is a significant observation, indicating that the market's current strength is derived from large-scale institutional interest rather than widespread individual investor enthusiasm. This could be a double-edged sword, as it suggests professional money is confident, but also that a major wave of new retail investors has yet to enter.

Potential Pullbacks and Future Outlook

Considering all metrics, several indicators (funding rates, stablecoin ratio channels, liquidation heatmap, percentage of addresses in profit, and fear & greed) point to the need for short-term caution. However, long-term holder behavior and supply age bands remain "strangely positive," implying that this is not yet the market cycle's top, though a pullback might be necessary. Analyzing past pullbacks in this cycle (since January 2023), the largest was 30%, with typical corrections between 10% and 20%. A 10% pullback would bring Bitcoin to $110,000, a 20% pullback to $97,000, and a 30% pullback to $85,000. A more extreme bear market fall of 50%, reaching $61,000-62,000, is considered possible in the future, but unlikely right now. A 10-18% pullback is seen as reasonable and even healthy, providing a much-needed relief to the market and reinforcing the $110,000 support level before another leg up. Such a pullback aligning with the Federal Reserve's September meeting, where a majority expects an interest rate cut, could set the stage for further price appreciation. The author emphasizes that this is a hypothesis based on data, not a certainty. While short-term caution is advised due to extreme greed and unbalanced long positions, the long-term outlook remains positive due to the absence of significant long-term holder distribution.

Metric	Current State	Implication
Funding Rates	Highest since January ($0.019)	Caution, potential for price top due to euphoria
Exchange Reserve	Increased (~10,000 BTC into exchanges)	Potential for short-term selling pressure
Long-Term Holders Supply	Not significantly decreasing (slight 92,000 BTC dip, but not major distribution)	Strangely positive, long-term bullish outlook
Supply Age Bands	Low movement of old coins to new coins	Supports long-term bullish outlook, "diamond hands"
Ahash Flow Sentiment	Rising, currently at 75 (top at 81)	Trending towards caution, not yet extreme distribution
Stablecoin Ratio Channel	Short-term local top level, long-term not oversold	Short-term pullback possible, long-term positive
Liquidation Heatmap	Large gap between long/short positions, unbalanced market	Likely short-term correction to rebalance
Fear & Greed Index	Entered "extreme greed"	Alert, strong indicator of potential reversal
Addresses in Profit/Loss	~100% in profit, but profit size less than previous peaks	Attention needed, but not as euphoric as past all-time highs
Retail Activity	Almost none	Institutional-driven market, surprising lack of retail

Takeaways

Short-Term Caution: Several indicators, including high funding rates, increased exchange reserves, an unbalanced liquidation heatmap, and the Fear & Greed Index in "extreme greed," suggest that the Bitcoin market is currently overheated and warrants short-term caution, potentially signaling an imminent pullback.
Long-Term Bullish Trend: Despite short-term warnings, the behavior of long-term holders and the supply age bands indicate that major distribution has not yet begun. This absence of widespread selling by seasoned investors is a "strangely positive" sign, suggesting that this is not the overall cycle top and implying continued long-term growth potential.
Healthy Pullback Expected: A pullback of 10-20% is deemed reasonable and even healthy for the market to rebalance sentiment, liquidate overextended long positions, and establish stronger support levels (e.g., around $110,000) before a further ascent.
Institutional vs. Retail Drivers: The current price surge is primarily driven by institutional buying, including ETFs and corporate acquisitions, with a surprising lack of retail investor activity. This highlights a professional-grade market but also suggests untapped potential from future retail inflow.
Interest Rate Cut Catalyst: The potential for a Federal Reserve interest rate cut, with a 60% expectation for the September meeting, could serve as a significant catalyst for the next major leg up in Bitcoin's price, potentially following a short-term market correction.