Bitcoin (BTC) has reached a new year-to-date high, soaring past $42,000 on December 4. The asset has broken through the upper limit of the trading range it was confined to for weeks, recording its strongest monthly close since March 2022.
However, analysts from the cryptocurrency exchange Bitfinex have warned that investors and traders be wary of BTC’s downside risk as a breach of the asset’s three-year Realized Price may result in market capitulation.
Investors to be Wary of Bitcoin’s Downside Risk
According to the latest edition of the Bitfinex Alpha report, the Bitcoin Realized Prices Spectrum is a significant metric for analyzing BTC market trends as it reveals critical price levels for pullbacks.
Bitcoin’s latest price surge has caused the digital asset to trade above all the markers of the realized price bands, including the prices of Unspent Transaction Outputs (UTXOs) aged less than one, two, three, five, and seven years. BTC has been finding support and resistance at each price band throughout the last cycle, with the three-year band being one of the most important.
The three-year band is currently around $31,000, and BTC has yet to retest it since the break up from it. Analysts believe a decline in BTC price below the three-year band could trigger a major correction, causing a capitulation among investors who have held the asset for three years and possibly leading to a further drop in the short-term holder realized price.
“While this seems unreasonable given the current price dynamics, this would be analogous with the early 2020 drop in price, after a rally past the bear market lows at that time…This correction might aim for the one-year, two-year, and five-year realized prices, situated at approximately $29,000. These would be the absolute lowest levels of support should any extended pullback occur,” Bitfinex said.
An Alternative Scenario
Bitfinex further explained that although the perspective may seem “bleak,” it was crucial to consider all possible outcomes for Bitcoin’s price movement. However, an alternative scenario sees all realized prices on the metric, except the long-term holder realized price, aligning in an upward direction.
Meanwhile, Bitfinex attributed BTC’s latest surge to a combination of factors, including significant buying activity in the market and a significant shift in the dynamics of the futures market compared to the spot one.