Bitcoin has been a major contributor to the recent uptrend in the crypto market, but as the rally continues to drive some altcoins to reach new heights, investors should be wary of a potential sudden market selloff. Here are three important indicators that suggest a reversal in the market trend:
Rampant unrealized profits
The Market Value to Realized Value (MVRV) indicator reveals that many cryptocurrencies are currently overvalued. This on-chain metric is used to determine the average profit/loss of investors who purchased an asset in the past month. High MVRV values indicate that the average profit of all addresses that purchased the asset in the past month is high, suggesting the asset is overvalued. For example, the 30-day MVRV for Bitcoin has spiked to 27%, while the 30-day MVRV for Ethereum has peaked at 19.6%.
The Miners’ Position Index (MPI) measures the ratio of the number of miners who are sending their mined coins to exchanges versus the number of miners who are sending them to other addresses. A high MPI value indicates that a larger percentage of miners are sending their coins to exchanges, which is generally considered a bearish signal and suggests that miners are selling their crypto holdings. The MPI for Bitcoin spiked to 3.96 on January 14 when Bitcoin price hit $20,957, this suggest that miners are not getting over excited and are selling their mined BTC to exchange wallets.
Regulators are increasing scrutiny on the crypto industry following a series of negative events in 2021, including major players like Terra, FTX, Three Arrows Capital (3AC) etc. Additionally, the situation that Grayscale and its parent company Digital Currency Group (DCG) are in is also affecting the market. Reports such as Signature Bank limiting its crypto partners and raising its users’ minimum buy-in amount to $100,000, and regulators seizing Sam Bankman-Fried’s $50 million at an obscure Farmington State Bank in rural Washington, all contribute to a negative sentiment in the market and may trigger a sudden selloff.