Bitcoin Bear Market Warning: On-Chain Data Reveals Potential for Prolonged Drawdown
Bitcoin’s recent price action has triggered a critical alert within the crypto community, as a key on-chain profitability metric is signaling a potential for a significant correction. A closely watched indicator, “Supply in Profit,” has reached a configuration reminiscent of 2022, a year marked by a prolonged bear market. According to industry analyst Axel Adler Jr., a drop below $70,000 could risk a similar “year-long” reset for the leading cryptocurrency. This analysis delves into the specifics of this on-chain data, exploring the implications for Bitcoin investors and the broader market. Understanding these signals is crucial for navigating the current volatile landscape and making informed investment decisions.
Understanding the “Supply in Profit” Metric
The “Supply in Profit” metric tracks the amount of Bitcoin currently held by investors who acquired it at a lower price. Essentially, it gauges how much of the circulating supply is currently profitable. A high “Supply in Profit” indicates strong investor confidence and a healthy market, while a declining metric can signal growing concerns and potential selling pressure. This metric is a valuable tool for assessing market sentiment and identifying potential turning points.
Following a pullback from October highs, Bitcoin has stabilized in the $87,000–$90,000 range. However, the “Supply in Profit” has fallen sharply from peaks exceeding 19 million BTC in October to approximately 13.2 million BTC. This substantial decrease has created a widening gap between short-term and medium-term moving averages, a development that is raising red flags among analysts.
Source: Axel Adler
A 2022-Like Setup Looms for Bitcoin?
Adler’s analysis centers on the spread between the 30-day and 90-day simple moving averages (SMAs) of the “Supply in Profit” metric. After the recent correction, the 30-day average has dropped significantly below the 90-day average, creating a gap of around 1.75 million BTC. This pattern is strikingly similar to what was observed in 2022 before the onset of an extended bearish period.
However, Adler emphasizes a crucial difference this time around. The 365-day moving average remains at historically elevated levels, suggesting that the longer-term profit structure hasn’t yet fully deteriorated. This provides a degree of resilience that wasn’t present in 2022. The key question now is whether the 30-day trend has reached a bottom.
The Importance of the Moving Average Crossover
Adler identifies December 18th as a potential local minimum for the 30-day average, noting that it is now “beginning to turn around.” Confirmation of this trend requires the “Supply in Profit” to hold above its 30-day average, which, in practice, means Bitcoin needs to maintain its current price levels or move higher. A sustained recovery in this signal would be a positive sign for the market.
Adler projects that the gap between the 30-day and 90-day averages is narrowing at a rate of approximately 28,000 BTC per day. This is largely due to the mechanical effect of the 90-day average being pulled down as high October values roll out of the calculation window. This natural adjustment could provide a tailwind for a bullish crossover.
Source: Axel Adler
“Why is SMA 90 falling while price remains stable?” Adler explains in his analysis. “This is a mechanical effect of the moving average: values from early October are now dropping out of the 90-day window, when Supply in Profit was at peaks of 18–20M BTC with price at $115–125K. Even with stable current Supply, this pulls the average down.”
The $70,000 Invalidation Level
The forecast is heavily price-dependent. Adler estimates that “Supply in Profit” has an “elasticity to price” of 1.3x, meaning a 10% decrease in Bitcoin’s price could lead to a 13% drop in the supply held in profit. He identifies the $70,000 zone as a critical fault line for the market.
“At what price does the cross scenario get invalidated?” Adler asks. “The critical zone is below $70K. At that level, Supply would fall to ~10M BTC, and SMA 30 would begin declining faster than SMA 90. The GAP would stop narrowing and shift to expansion, postponing the bullish signal indefinitely.”
If Bitcoin were to fall below $70,000, the setup would more closely resemble the conditions of 2022, with the spread expanding rather than compressing and the bullish crossover being delayed, potentially for up to a year. Conversely, maintaining a price above $75,000–$80,000 through January would support “Supply in Profit” and preserve the convergence pace, increasing the likelihood of a bullish crossover.
Key Takeaway: The $70,000 level represents a crucial support zone for Bitcoin. A breach of this level could significantly increase the risk of a prolonged bear market.
Current Market Status and Future Outlook
As of today, Bitcoin is trading at $88,102. The price remains within the 0.618 and 0.786 Fibonacci retracement levels, indicating a period of consolidation. The next few weeks will be critical in determining whether Bitcoin can maintain its upward momentum or succumb to selling pressure.
The on-chain data presented by Axel Adler Jr. provides a valuable framework for understanding the potential risks and opportunities facing Bitcoin investors. By closely monitoring the “Supply in Profit” metric and its moving averages, traders can gain insights into market sentiment and make more informed decisions. However, it’s important to remember that on-chain data is just one piece of the puzzle, and other factors, such as macroeconomic conditions and regulatory developments, can also significantly impact Bitcoin’s price.
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Investing in Bitcoin and other cryptocurrencies carries significant risks, and you should always do your own research before making any investment decisions.
Source: TradingView.com
- Key Metric: Supply in Profit
- Critical Level: $70,000
- Potential Scenario: Prolonged Bear Market if $70,000 is breached
- Positive Signal: Bullish crossover of 30-day and 90-day SMAs