Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
Bitcoin’s price tumbled by 4% to $112,000 on Monday, triggering over $1.6 billion in liquidations of leveraged long positions across the crypto market and leading analysts to suggest the bull cycle is showing signs of “cycle exhaustion.” This significant drop extends a broader market correction, raising concerns about further downside potential.
Market Downturn and Liquidation Impact
The cryptocurrency market experienced a widespread correction that saw Bitcoin’s price fall as low as $111,980. This extended its deviation from the August 14 all-time high of $124,500 to 10%.
The sudden downturn resulted in the liquidation of 402,730 traders. Over $1.62 billion in long positions were wiped out, with Ethereum (ETH) accounting for $479.6 million and Bitcoin (BTC) contributing $277.5 million to these liquidations.
The Bitcoin liquidation heatmap indicated significant liquidity around the $112,000 mark. Analysts noted more than $400 million in bid orders between $111,500 and $110,000, suggesting the price could fall further to sweep this liquidity before any potential recovery.
Onchain Metrics Signal “Cycle Exhaustion”
Several onchain indicators are now warning that Bitcoin’s rally may have lost momentum. Alphractal founder Joao Wedson stated on X that “Bitcoin is already showing signs of cycle exhaustion and very few are seeing it,” pointing to further potential downside.
Fading Profitability and Risk-Return Profile
The Spent Output Profit Ratio (SOPR), which measures the overall profitability of spent Bitcoin transactions, has shown fading profitability. This trend increases the likelihood of a deeper market correction.
Furthermore, the Sharpe ratio for Bitcoin is currently weaker than levels observed in 2024. This indicates a lower risk-adjusted return and reduced profit potential for investors.
Wedson commented that this reduced profitability “won’t attract as many institutions as most people believe.” He added that even if BTC achieves new all-time highs, profitability might remain low, shifting focus to altcoins.
Bearish Taker Buy/Sell Ratio
Data from CryptoQuant shows Bitcoin’s taker buy/sell ratio across all exchanges at -0.79. A value below 1 signifies that bears control the market, with active selling volume (taker sell) outpacing buying.
Similar levels were last observed in January when Bitcoin reached the $109,000 range before a three-month correction. That period saw BTC price drop by 32% to $74,000 by April, reinforcing concerns about current market weaknesses.
External Factors and Future Outlook
The Federal Reserve’s recent interest rate cut, which was previously seen as a bullish catalyst for Bitcoin, failed to stimulate the market. This suggests that the impact of traditional financial policy on Bitcoin’s current cycle may be diminishing.
With markets turning bearish on Monday, analysts are now divided on the possibility of a significant rally in October. The current confluence of bearish onchain signals and external market factors presents a challenging outlook for Bitcoin in the near term.
Key Takeaways
Bitcoin’s recent drop to $112,000 was marked by substantial liquidations and a shift in market sentiment, driven by bearish onchain metrics like a weakening SOPR, a lower Sharpe ratio, and a negative taker buy/sell ratio. These indicators, combined with the muted response to the Fed’s rate cut, suggest that the Bitcoin bull cycle may be entering a phase of exhaustion, potentially leading to further price corrections.
