Key Bitcoin metrics to watch out for ahead of next week following market sell-off

Bitcoin could be set for an interesting week ahead as it struggles to recover from its largest drawdown in the current cycle. This drawdown was sparked by a series of events, including fears of recession, geopolitical tension in the Middle East, and the Japanese yen carry trade.

The metrics below reveal key insights investors need to watch out for as a new week approaches.

Bitcoin metrics that could prove crucial going into next week

Bitcoin's Market Value to Realized Value (MVRV) ratio fell below its 365-day moving average after the market downturn, according to CryptoQuant's data. In previous times, such a move triggered further market declines — the COVID market crash in March, the correction in May 2021, and the beginning of a bear season in November 2021. Hence, investors must be cautious even though the market appears to be seeing a price bounce.

Bitcoin MVRV

Bitcoin saw a drawdown of 32% — its largest in the current cycle — as investors realized losses of $1.38 billion — its 13th largest event in history — following the market crash, according to Glassnode analysts. The short-term holders (STH) cohort was the most affected, bearing 97% of the loss. The STH Spent Output Profit Ratio (SOPR) also declined to a three-year low, indicating new investors realized a 10% loss on average — only 70 trading days in Bitcoin's history have seen a lower value.

BTC: LTH vs STH Percent Realized Loss

Bitcoin and Ethereum's open interest (OI) declined by $6 billion individually, and their funding rates turned negative, indicating that long traders closed positions heavily while shorts dominated the market. If OI increases and funding rates turn positive for an extended period, it could indicate the potential for a major price reversal.

Exchanges' stablecoin supply on Ethereum has seen close to $2 billion in net inflows since the market crashed on April 5, according to CryptoQuant's data. During the same time, over $1.3 billion was moved from Tether Treasury to exchanges and other addresses as per Lookonchain's data. This suggests investors and institutions are buying the dip heavily, expecting prices to rebound.

Stablecoin Exchange Netflow

The US lower-than-expected non-farm payroll data last Friday showed that the unemployment rate rose by 4.3%, sparking fears of recession. This is evidenced in reports that computer firm Dell and networking firm Cisco plan to lay off 12,500 and 4,000 employees, respectively. As a result, analysts expect the Federal Reserve to begin cutting interest rates in September.

A lower interest rate environment could raise the prices of risk assets like stocks and crypto. Hence, most crypto community members expect Bitcoin to perform strongly in the coming months if the Fed cuts rates.

The Bank of England, the People's Bank of China, and the European Central Bank have all cut rates in the past few months, and the Fed is expected to follow suit.

In an interview with Providence Journal, Fed Boston President Susan Collins said that the Federal Reserve could begin easing rates if inflation continues to slow down. "If the data continue the way that I expect, I do believe that it will be appropriate soon to begin adjusting policy and easing how restrictive the policy is," said Collins.