Bitcoin, the world's leading cryptocurrency, has witnessed a 22% pullback from its all-time high in March, prompting speculation about the formation of a local bottom in the market. On-chain intelligence company Glassnode suggests in a recent report that the market is currently in a state of "euphoria," with unrealized profits comprising more than half of Bitcoin's market capitalization. Such a scenario typically signals a correction in the market.

At the time of writing, Bitcoin's price has fallen to $57,000, leading many investors to believe that the ongoing pullback represents a correction phase. Glassnode's analysis indicates that a key indicator to determine whether the local bottom has been reached is when short-term investors start experiencing losses. Historical data from 2020 until now reveals that when entities that have been active for one week to one month realize losses, Bitcoin's price tends to rebound shortly thereafter.

Carlos Mercado, a data scientist at analytics company Flipside Crypto, supports Glassnode's observation, suggesting that this phenomenon reflects the behavior of "paper hand" investors. These investors tend to exit the market at the highest rate when it reaches its bottom. The market-value-to-realized-value (MVRV) ratio, which measures an asset's market cap against its stored value, is currently within a range of 1.0 to 0.9, indicating the potential for a bounce back.

Glassnode's report highlights that the market appears to be "hammering out a local bottom formation," but warns that a sustained break below the MVRV level could trigger panic selling and the need to establish a new equilibrium. Since the report's publication, the price of Bitcoin has continued to decline from $66,700 to $57,000, raising concerns about a potential sell-off by "paper hand" investors.

Senior market analyst at FxPro, Alex Kuptsikevich, points out that, based on market dynamics, the closest consolidation to the current price level was observed within the $50,000 to $52,000 range. However, a more dramatic scenario suggests a pullback to the $40,000 to $44,000 range, which would likely shake out weak-handed investors before attracting new buyers.

The market remains highly volatile as investors monitor the price movements of Bitcoin closely. It remains to be seen whether the current pullback is a precursor to a further decline or signifies the potential establishment of a local bottom formation. Daily crypto news updates are crucial to staying informed about the continued developments in the market.