Bitcoin may be entering a short-term correction phase, as on-chain and market sentiment indicators flash caution despite an overall bullish trend.
According to a July 20 analysis by CryptoQuant contributor ShayanMarkets, Bitcoin (BTC) reserves on centralized exchanges have risen to their highest level since June 25. This uptick in exchange balances reflects ongoing profit-taking by investors, increasing the supply of BTC that could potentially be sold.
Reserve increases of this kind have historically preceded market declines or times of price consolidation, particularly when they occur in tandem with waning buy-side momentum. Darkfost, a fellow CryptoQuant contributor, pointed out a significant increase in BTC whale inflows to exchanges, which further supports the cautious outlook.
The inflows, which are averaged monthly to smooth out short-term volatility, increased by almost $17 billion, from $28 billion to $45 billion between July 14 and 18. Similar trends were observed during past local peaks, when monthly whale inflows exceeded $75 billion before leading to more significant corrections.
The overall upward pressure from whales trying to secure profits remains a risk factor, even though daily inflow volumes have since decreased. Still, there is a strong sense of optimism.
CryptoQuant’s Bitcoin Bull Score Index is currently at 80, indicating a very bullish phase, according to analyst Arab Chain. But there’s also a chance of overheating with such high optimism. In the past, excessive greed has led to higher volatility as traders reduce positions and take profits, particularly after an all-time high.
At press time, Bitcoin was trading at $118,307, up 0.4% in the past 24 hours after retreating from a record high of $122,838 set on July 22. The asset is down 2.5% over the past week but remains up 14% over the last 30 days.
On the technical side, the daily chart shows short-term fatigue. Bitcoin is trading near the middle of the Bollinger Bands, with the lower band at $105,383 and the upper band at $123,522. The price’s consolidation at $114,453, just above the 20-day simple moving average, suggests a potential support test.
Volume has declined relative to recent highs, which is consistent with the ongoing profit-taking narrative. At 68.11, the relative strength index is just below the overbought level, indicating that momentum is cooling off even though it’s still positive.
If Bitcoin closes below the 20-day SMA and the mid-Bollinger band, it might decline further toward the lower band around $105K. On the upside, a fresh breakout above $122,000 would probably invalidate the bearish theory and confirm that the upward trend is still in place.
