For bulls, the daily price action of Bitcoin (BTC) leaves a lot to be desired, and at the moment there are few signs of an impending reversal.
Following the trend of the past six months or more, current factors continue to put pressure on the price of BTC:
- Ongoing concerns about potentially tough crypto regulations.
- US Federal Reserve policy, interest rate hikes and quantitative tightening.
- Geopolitical concerns related to Russia, Ukraine and the militarization of high-demand natural resources imported by the European Union.
- Strong sense of risk aversion due to the possibility of a US and global recession.
Combined, these challenges have made high volatility assets less attractive 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 longer-duration metrics that gauge Bitcoin’s price, investor sentiment, and valuation perceptions present some interesting data points. .
The market still flirts with oversold conditions
On the daily and weekly timeframe, the price of BTC is leaning against a long-term descending trend line. At the same time, the Bollinger Bands, a simple momentum indicator that reflects two standard deviations above and below a simple moving average, are beginning to tighten.
Tightening of the bands usually occurs before a directional move, and price trading at long-term resistance is also usually indicative of a strong directional move.
Bitcoin’s March 28-June 13 sell-off sent its Relative Strength Index (RSI) to a multi-year record low, and a quick look at the indicator versus the longer-term price action BTC futures show that buying when the RSI is deeply oversold is a profitable strategy.
Although the short-term situation is dire, an independent view of Bitcoin prices and its market structure would suggest that now is the 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 painting speaks for itself. Of course, further decline could occur, and various technical and on-chain analysis indicators have yet to confirm a market bottom.
Some analysts have predicted a decline in the $15,000-$10,000 range, and it is possible that the buy wall at $18,000 will be absorbed and turn into a bull trap. Apart from this event, the increase in position size on the appearance of an oversold weekly RSI has yielded positive results for those brave enough to take the plunge.
Another interesting metric to view over a longer timeframe is the Moving Average Convergence Divergence Oscillator (MACD). Like the RSI, the MACD has become deeply oversold as the price of Bitcoin crashed to $17,600, and while the MACD (blue) has crossed the signal line (orange), we can see that it persists again in previously untested territory.
The histogram turned positive, which some traders interpret as a sign of an early trend reversal, but given all the macro challenges the crypto faces, it should not be relied upon heavily in this instance.
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 called a bullish divergence.
From a technical analysis perspective, the confluence of several indicators suggests that Bitcoin is undervalued. Now, that said, the bottom does not appear to be reached, as a host of non-crypto-specific issues continue to plague BTC’s 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 so far.
The MVRV Z-Score is an on-chain metric that reflects a ratio of BTC’s market capitalization to its realized capitalization (the amount people have paid for BTC compared to its current value).
According co-creator David Puelle:
“This metric clearly displays the peaks and troughs of the price cycle, highlighting the oscillation between fear and greed. The brilliance of realized value is that it subdues ‘the emotions of the crowds’ to a significant degree.
Basically, if Bitcoin’s market value is significantly higher than its realized value, the metric enters the red zone, indicating a possible market top. When the metric enters the green zone, it signals that Bitcoin’s current value is below its realized price and the market may be approaching a bottom.
Looking at the chart, relative to the price of Bitcoin, the current Z-Score MVRV of 0.127 is in the same range as previous multi-year lows and cycle lows. Comparing the on-chain data with the previously mentioned technical analysis indicators again suggests that BTC is undervalued and in an optimal zone for building a long position.
Related: Bitcoin price slips below $19,000 as official data confirms US recession
Another on-chain data point showing some interesting data is the Reserve Risk metric. Created by Hans Hauge, the chart provides a snapshot of how “confident” Bitcoin investors compare to the spot price of BTC.
As the chart below shows, when investor confidence is high, but the price of BTC is low, the risk of rewarding or attractiveness of Bitcoin versus the risk of buying and holding BTC comes into play. the green zone.
During periods when investor confidence is low, but price is high, reserve risk moves into the red zone. According to historical data, building a Bitcoin position when Reserve Risk enters the green zone was a good time to establish a position.
As of September 30, data from LookIntoBitcoin and Glassnode both show that reserve risk is trading at its lowest measurement on record and outside the green zone boundaries.
This newsletter was written by Big Smokey, the author of The Humble Pontificator Sub-stack and resident newsletter author at Cointelegraph. Every Friday, Big Smokey will write market insights, practical trend tips, analysis, and early research on potential emerging trends in the crypto market.
The views and opinions expressed herein 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 conduct your own research when making a decision.