For the bulls, the daily price action of Bitcoin (BTC) leaves a lot to be desired and, at the moment, there is little sign of an imminent turnaround.
Following the trend of the last six or more months, the current factors continue to put pressure on the price of BTC:
- The persistent concern about a possible strict regulation of cryptocurrencies.
- US Federal Reserve policy, interest rate hikes and quantitative tightening.
- Geopolitical concerns related to Russia, Ukraine and the armament of high-demand natural resources imported by the European Union.
- The strong feeling of risk aversion due to the possibility of a US and global recession.
When combined, these challenges have made high-volatility assets less interesting to institutional investors, and the euphoria seen during the 2021 bull market has largely dissipated.
So the day-to-day price action isn’t encouraging, but looking at the longer-duration metrics that measure the price of Bitcoin, investor sentiment and valuation perceptions present some interesting data points. .
The market still flirts with oversold conditions
On the daily and weekly time frame, BTC price is pressing against a long-term downtrend line. At the same time, the Bollinger Bands, a simple momentum indicator reflecting two standard deviations above and below a simple moving average, begin to contract.
Band tightening usually occurs before a directional move, and price trading at long-term resistance is also usually indicative of a strong directional move.
Bitcoin’s sell-off from March 28 to June 13 sent its relative strength index (RSI) to a multi-year low, and a quick look at the indicator compared to BTC’s long-term price action shows that buying when the RSI is deeply oversold is a profitable strategy.
While the short-term situation is dire, an agnostic view of Bitcoin price and its market structure would suggest that now is an opportune time to accumulate.
Now, let’s compare Bitcoin’s multi-year price action to the RSI to see if any interesting dynamics emerge.
In my opinion, the chart speaks for itself. Of course, further downside could occur, and various on-chain analysis and technical indicators have yet to confirm a market bottom.
Some analysts have forecast a drop to the $15,000-$10,000 range, and the $18,000 buy wall may be absorbed and turn into a bull trap. Aside from that event, increasing position size on the occurrence of an oversold weekly RSI has yielded positive results for those brave enough to take a hit.
Another interesting metric to watch on the longer time frame is the moving average convergence divergence oscillator (MACD). Like the RSI, the MACD was deeply oversold as Bitcoin price crashed to $17,600, and although the MACD (blue) crossed above the signal line (orange), we can see that it still remains in untested territory. previously.
The histogram has turned positive, which some traders interpret as an early sign of a trend reversal, but given all the macro challenges facing cryptocurrencies, one should not place too much faith in this case.
What I find interesting is that while Bitcoin price is showing lower highs and lower lows on the weekly chart, the RSI and MACD are moving in the opposite direction. This is known as a bullish divergence.
From a technical analysis point of view, the confluence of multiple indicators suggests that Bitcoin is undervalued. Now, with that being said, it appears that the bottom has not been reached, as a bunch of non-crypto-specific issues continue to inject weakness into the BTC price and the broader market. A drop to $10,000 is another 48% drop from BTC’s current valuation near $20,000.
Let’s take a look at what the on-chain data shows right now.
MVRV Z-score
The MVRV Z-Score is an on-chain metric that reflects a ratio between the market capitalization of BTC and its realized capitalization (the amount people paid for BTC compared to its current value).
According to co-creator David Puell:
“This metric clearly shows the peaks and troughs of the price cycle, emphasizing the oscillation between fear and greed. The brilliance of realized value is that it subdues ‘crowd emotions’ to a significant degree”.
Basically, if the market value of Bitcoin is considerably higher than its true value, the metric enters the red area, indicating a potential market top. When the metric enters the green zone, it indicates that the current value of Bitcoin is below its realized price and that the market could be reaching its lowest point.
Looking at the chart, when compared to the Bitcoin price, the current Z-Score of 0.127 MVRV is in the same range as previous multi-year lows and cycle bottoms. Comparison of the on-chain data with the technical analysis indicators mentioned above again suggests that BTC is undervalued and in an optimal zone to build a long position.
reserve risk
Another on-chain data point that shows interesting data is the reserve risk metric. Created by Hans Hauge, the chart provides a picture of how “confident” Bitcoin investors contrast with the spot price of BTC.
As shown in the chart below, when investor confidence is high but the price of BTC is low, the reward risk or attractiveness of Bitcoin versus the risk of buying and holding BTC enters the green area.
During times when investor confidence is low but price is high, reserve risk moves into the red area. Based on historical data, creating a Bitcoin position when Reserve Risk enters the green zone has been a good time to establish a position.
As of September 30, data from LookIntoBitcoin and Glassnode show that reserve risk trading is at its lowest and outside the bounds of the green zone.
This newsletter was written by Big Smokey, the author of The Humble Pontificator Substack and resident author of the newsletter at Cointelegraph. Every Friday, Big Smokey will write market insights, trend instructions, analysis, and early research on potential emerging trends within the crypto market.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.