Bitcoin's Potential Bear Market Transition Amid Deteriorating On-Chain Metrics

The cryptocurrency market is at a critical juncture, with Bitcoin’s on-chain metrics painting a cautionary picture. The Bull Score Index, a composite indicator of market sentiment and momentum, has fallen to 20—a level historically associated with bearish transitions [1]. While this decline has lasted only two days (compared to 60+ days in prior bear markets), it signals weakening fundamental support for the current bull run [4]. Coupled with a red-flag MVRV Z-Score and a deteriorating EMA Supply In Profit trend, investors must recalibrate their strategies to mitigate risks and navigate potential volatility.

Deteriorating On-Chain Signals: A Bearish Convergence

The Bull Score Index’s drop to 20 reflects a sharp contraction in bullish momentum. Historically, this threshold has preceded significant price corrections, as seen in 2018 and 2022 [1]. However, the brevity of the current decline suggests the market may still be in an early consolidation phase. Analysts caution that if the index remains below 20 for 60 days, a deeper correction could follow [1].

Meanwhile, the MVRV Z-Score—a measure of Bitcoin’s overvaluation relative to its realized value—has entered the red zone at 1.43 [3]. While this level has historically marked local bottoms during bull cycles, it now indicates that a large portion of Bitcoin’s supply is held at a profit, increasing the risk of profit-taking and liquidity crunches [5]. A drop below 1.3 would confirm a bearish shift, as seen in prior market tops [3].

The 90-day EMA Supply In Profit has also turned negative, echoing patterns from earlier bearish periods [1]. This technical indicator reinforces the idea that Bitcoin’s price correction may persist until it stabilizes at a new equilibrium. Additionally, the 100-day EMA has become a critical floor at $106,641, with the price currently trading below it—a bearish divergence that amplifies structural risks [2].

Strategic Risk Management: Hedging and Positioning

Given these signals, investors must adopt a disciplined approach to risk management. First, hedging against downside volatility through derivatives or short-term options can protect against sharp corrections. The current derivatives-long overhang—where open interest exceeds spot demand—suggests heightened exposure to a potential selloff [2].

Second, positioning in undervalued assets may offer asymmetric upside. While Bitcoin’s RSI of 35 indicates oversold conditions, a rebound in the Bull Score Index above 50 could trigger a relief rally to $65,000 [1]. Investors should also monitor altcoins like Solana (SOL) and Chainlink (LINK), which have mirrored Bitcoin’s bearish sentiment but may recover faster if macroeconomic conditions stabilize [1].

Third, liquidity management is critical. With exchange reserves declining and trading volumes dropping 15% in 48 hours, investors should avoid overleveraging and maintain sufficient cash buffers to withstand prolonged volatility [1].

Conclusion: Timing and Patience in a Fragmented Market

The interplay of on-chain metrics and macroeconomic uncertainties underscores the need for strategic timing. While Bitcoin’s bearish signals are not yet definitive, the convergence of the Bull Score Index, MVRV Z-Score, and EMA trends warrants caution. Investors should prioritize risk mitigation, avoid overexposure to leveraged positions, and remain agile to capitalize on potential rebounds. As the market navigates this inflection point, patience and disciplined execution will be paramount.

Source:
[1] Bull Score Index Falls to 20 After Only 2 Days vs 60+ Days in Past Bear Markets — CryptoQuant Signal Traders Should Watch (https://blockchain.news/flashnews/bull-score-index-falls-to-20-after-only-2-days-vs-60-days-in-past-bear-markets-cryptoquant-signal-traders-should-watch)
[2] Bitcoin's Derivatives-Long Overhang and Spot Derivatives Divergence (https://www.ainvest.com/news/bitcoin-derivatives-long-overhang-spot-derivatives-divergence-navigating-structural-risks-contrarian-opportunities-2508/)
[3] Bitcoin MVRV Z-Score Chart (https://newhedge.io/bitcoin/mvrv-z-score)
[4] Bitcoin's Bull Score Flashes Red: What On-Chain Data Means for BTC's Future (https://cryptopotato.com/bitcoins-bull-score-flashes-red-what-on-chain-data-means-for-btcs-future/)