On-Chain Data Indicates Potential Volatility Near $120K

Bitcoin (BTC) has embarked on a fresh upward trend, reaching a record high of over $111,000 on May 22, driven by rising investor optimism, unprecedented inflows into spot BTC exchange-traded funds (ETFs), and increased activity in derivatives trading.

Yet, as on-chain signals suggest a surge in positive sentiment, experts caution that volatility may be imminent, particularly as the $120,000 mark becomes a significant psychological and technical milestone.

Increased Activity Signals Caution

Recent data from a crypto analytics firm indicates that Bitcoin’s momentum remains robust. Indicators reveal growing investor profitability, a sharp rise in trading volume on centralized exchanges, and a 51% jump in futures open interest since the local low of around $74,000 in April.

The signs of enthusiasm are evident in active market engagement. The analytics firm reported a major rise in exchanges’ activities, with around 33% of Bitcoin’s on-chain volume now passing through centralized platforms, which analysts interpret as a clear sign of increasing trading interest.

Moreover, even though BTC has reached its third all-time high during this cycle, the current rally is still within historical limits. The data suggests a rapidly heating market, with profitability levels driving the Relative Unrealized Profit metric above the +2 standard deviation range.

“Such conditions are often marked by increased volatility and tend to be fleeting,” analysts cautioned, noting that only 16% of trading days experience such high unrealized profits.

This finding aligns with a recent report, which showed that 99% of Bitcoin’s Unspent Transaction Outputs (UTXOs) are now profitable. Historically, reaching this level has signaled important market turning points, frequently preceding either extended rallies or sharp downturns.

However, analysts emphasized the need for caution, pointing out existing macroeconomic uncertainties, particularly related to U.S. policy changes, which could temper overall risk appetite despite the current high profitability.

Price Trends Indicate Market Tension

BTC’s recent price movement illustrates this balancing act. After hitting a peak of $111,814 last week, the cryptocurrency has seen expected consolidation, retreating to around $107,728 at the time of this report.

This price reflects a slight 1.2% decline in the past 24 hours, but a broader perspective reveals a more favorable momentum. Despite a 3.4% drop over the last week, BTC has gained 14.1% in the past month, with a year-over-year increase of 56.6%.

Attention is now turned towards the $120,000 mark, identified by analysts as a pivotal point where various on-chain pricing models converge. Historically, if BTC surpasses this level, it may trigger heightened selling pressure as long-term investors seek to realize their gains.

“Should the price continue to rise, the $120,000 area is anticipated to be a crucial zone, with increasing sell-side pressure likely,” the analysts concluded.