Bitcoin drops 9% from its ATH as the market shows signs of being ‘overheated’

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Bitcoin (BTC) is trading at $68,319 on March 15, down 4.5% over the last 24 hours as the crypto market displays “overheated” conditions, according to a report by on-chain analytics firm IntoTheBlock. 

Data from Cointelegraph Markets Pro and TradingView shows that the price of BTC turned down from its latest all-time high of $73,835 on March 14, dropping 9% to a new weekly low of $65,565 on Friday, March 15.

BTC/USD daily chart. Source: TradingView

The drop in Bitcoin’s price has also triggered a sell-off across the market, with the global crypto market cap dropping 4.1% on the day to rest at $2.59 trillion, according to data from CoinMarketCap.

The second largest cryptocurrency by market capitalization, Ether (ETH), has also dropped 5% in the last 24 hours to $3,708. Other top-cap tokens were also flashing red, with BNB (BNB), XRP (XRP), Cardano (ADA) and Dogecoin (DOGE) losing 2.3%, 7.3%, 5.8%, and 8% of their value, respectively, over the same period.

Solana (SOL) was the only token among the top 10 cryptocurrencies recording gains, rising 8% over the last 24 hours.

Previously, Cointelegraph had warned of a possible correction in the BTC price due to “overheated” conditions, as summarized by X user TOBTC.

BTC showing signs of a correction. Source: @_TOBTC

Data from market intelligence firm IntoTheBlock corroborates this information, highlighting growing leverage in the crypto market, which presents warning signs of a correction.

Funding rates reach highest levels since 2021

In this week’s On-chain Insights newsletter, IntoTheBlock reveals that the “amount that buyers of Bitcoin perpetual swaps pay those going short is at its highest since October 2021.”

In the chart below, IntoTheBlock analysts note BTC’s “funding rates on Binance and Bybit reached levels of 0.06% and 0.09% yesterday, paid every 8 hours.” “These fees translate to an annualized cost of 93% and 168% in order to go long Bitcoin,” the report added.

“The abnormally high funding rates are indicative of a market that skews very heavily on the long side.”

Bitcoin perpetual swaps funding rate. Source: IntoTheBlock

More data from Coinglass reveals that Bitcoin futures open interest (OI) on all exchanges reached its all-time high of $35.55 billion on March 15.

Bitcoin futures open interest on exchanges. Source: Coinglass

While high OI reflects new buying in the market fueled by increasing inflows into the spot Bitcoin ETFs, when open interest grows too high, “overly bullish positioning in derivatives posts a warning sign for the market,” as IntoTheBlock analysts point out.

DeFi ecosystem is accumulating too much risk

The high leverage conditions are extending beyond centralized exchanges, with loans on DeFi networks rising sharply.

The chart below shows that the total debt on all DeFi protocols has doubled in 2024. According to additional data from IntoTheBlock, the total debt increased from around $2 billion at the beginning of January to reach $4.15 billion on March 14.

“As Bitcoin reaches new all-time highs, crypto investors have begun seeking leverage against their holdings.”

Total debt on DeFi protocols. Source: IntoTheBlock

IntoTheBlock also reports an uptick in the “aggregate amount of debt issued through Aave v3 on Ethereum,” which “has increased by a factor of 2.14 year-to-date.”

“The amount of wrapped Bitcoin (WBTC) supplied to Aave has increased by more than 10,000 BTC (~$700M) so far in 2024,” the report added.

USDC lending rate. Source: IntoTheBlock

This means the rates in DeFi have increased with increasing “demand for leverage.”

As such, the firm warns the DeFi ecosystem is accumulating too much risk, which might lead to a price correction in the near term.

“The crypto market is likely to experience a significant correction as leveraged positions get paid back or are liquidated.”

Related: Bitcoin shorts stay absent amid ‘very normal’ sub-$66K BTC price dip

Bitcoin holders currently sitting in profits

BTC price breached multiple all-time highs in March in an uptrend largely influenced by the success of the spot Bitcoin ETFs in the United States.

Pointing to “overheated” conditions, the report by IntoTheBlock notes that the “average 90-day return for the top 20 crypto-assets (excluding stablecoins) […] is 103%.”

This means that most traders have realized profits from their crypto investments. According to independent analyst and X user Ali, investors “are currently sitting on profits of 70% in their holdings.”

In a March 14 post on X, analyst Ali shared the following chart from CryptoQuant showing that traders’ unrealized profit margins reached 69% when the price hit higher highs above $73,000, which is historically associated with upcoming corrections as traders embark on booking profits.

Ali said:

“This level of unrealized $BTC profits is the highest in the past three years!”

Bitcoin unrealized profit margins. Source: @ali_charts/X

More data from IntoTheBlock shows that 86% of all Bitcoin holders are in profit at current prices, increasing the chances of a continued sell-off in the short term as profit-booking continues.

Bitcoin IOMAP chart. Source: IntoTheBlock

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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