Bitcoin continues to trade within a narrow range, hovering around $66,500 so far this week. Although price action still appears modest, recent on-chain data suggests that this period of consolidation may be signaling a market bottom forming.
Supply profit reduced to 11.3 million BTC
In a Quicktake post on the CryptoQuant platform, on-chain analyst EgyHash offered a somewhat more optimistic outlook on the Bitcoin price, saying the flagship cryptocurrency could be forming a major cycle bottom. The relevant on-chain indicator here is the Profit Market Band Supply indicator.
As you can see in the chart below, the blue area on the graph represents the profit supply and the green line marks the bottom discovery.
Source: CryptoQuant
According to EgyHash, supply gains recently fell to around 11.3 million BTC. This is after tearing the psychological inflection (orange) and liquidity accumulation (purple) lines.
More importantly, EgyHash noted that the Bitcoin supply of its returns has reached directly into “bottom discovery” territory. According to analysts, this particular band is where most short-term Bitcoin holders will be forced to hand over their holdings.
Historically, profit supply readings have only reached the green band during major bottom periods of the Bitcoin cycle. The market quant cited the depth of the 2018/2019 cryptocurrency winter as an example. The March 2020 liquidity crisis is also included in this data, with other instances following the FTX capitulation in late 2022.
In particular, experts point out that the current speed of conversion is surprising. This is because the Bitcoin market quickly moved from the overheated zone to the bottom discovery zone in one flush.
EgyHash explained that this is a clear sign that “seller fatigue” has become the current situation and that the “mania” phase has long since been superseded.
Long-term holders dominate as selling pressure fades
Typically, when profit supply reaches this significant base, it is a sign that long-term holders are taking the reins. This is a classic scenario where a diamond hand absorbs the supply of a weaker hand.
Nonetheless, the cryptocurrency expert emphasized an important caveat, saying that a drop to the Bottom Discovery band “does not guarantee an immediate V-shaped recovery.” Instead, he said, this represents an exhaustion with relatively high bearish risk. Therefore, market participants are advised to wait for further confirmation before making any moves.
As of this writing, the price of Bitcoin is around $66,901, with no significant changes over the past 24 hours.
Featured image from iStock, chart from TradingView
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