Bulls are disappointed by Bitcoin’s ( BitcoinTC) daily price action. There are no signs of a turnaround at the moment.
The current factors continue to put pressure on the BTC price, following the trend for the past six months or more.
- There are persistent concerns about the possibility of stringent crypto regulation.
- The United States Federal Reserve policy on interest rate hikes, quantitative tightening and policy of the Federal Reserve.
- Geopolitical concerns regarding Russia and Ukraine, as well as the weaponization by the European Union of high-demand natural resource imports.
- Due to the possibility that the U.S. or global recession will occur, there is a strong risk-off mood.
These challenges, when combined, have made high-volatility assets less attractive to institutional investors. The euphoria experienced during the bull market in 2021 has largely disappeared.
Although daily price action is not encouraging on a daily basis, longer-term metrics that measure Bitcoin’s price, investor sentiment, and valuation perceptions do provide some interesting data.
Market conditions remain oversold.
BTC’s price has been pushing against a long-term downward trendline on both the weekly and daily timeframes. The Bollinger Bands, which are simple momentum indicators that reflect two standard deviations above or below a simple moving median, are starting to contract.
A strong directional move is usually preceded by tightening of the bands. Price trading at long-term resistance can also be indicative of this.
Bitcoin’s selloff between March 28 and June 13 brought its relative strength index (RSI), to a multi-year record low. A quick comparison of the indicator against BTC’s long-term price action reveals that buying when the RSI has been deeply oversold can be a profitable strategy.
Although the immediate situation is not good, a price-agnostic perspective of Bitcoin and its market structure would suggest now is a great time to accumulate.
Let’s now compare Bitcoin’s price movement over the RSI for a look at any interesting dynamics.
The chart speaks for itself, in my opinion. There are always risks, and technical and on-chain indicators that could indicate a market bottom have not yet confirmed a market bottom.
Analysts have predicted a fall to $15,000-$10,000. It’s possible that $18,000’s buy wall is absorbed by the market and becomes a bull trap. Those who are brave enough to swing have seen positive results from increasing their position size in response to an oversold weekly RSI.
The moving average convergence divergence oscillator (MACD), is another interesting metric that can be viewed over a longer time frame. The MACD, like the RSI, was deeply oversold when Bitcoin’s price fell to $17,600. While the MACD (blue), has now crossed above the signal (orange), it can still linger in territory that was previously unknown.
Although the histogram turned positive, some traders believe it to be a sign of a trend reversal signal. However, given all the macro challenges faced by crypto, this indicator should not be relied on in this instance.
It is interesting to note that Bitcoin’s price is showing lower highs than lows on the weekly charts, but the RSI (and MACD) are moving in the other direction. This is called a bullish divergence.
The confluence multiple indicators suggest that Bitcoin is undervalued from the point of technical analysis. However, this does not mean that the bottom is in. A host of non-crypto-specific issues continue to erode BTC’s market value and price. BTC’s current value of close to $20,000. is further eroded by a drop to $10,000.
Let’s have a look at the current on-chain data.
MVRV Z Score
MVRV Z-Score, an on-chain metric, is a ratio between BTC’s market capitalization and its realized capitalization. This is the amount that people have paid for Bitcoin compared to its current value.
According to cocreator David Puell
This metric clearly shows the peaks, and busts, of the price cycle. It also highlights the fluctuation between fear and greed. Realized value’s brilliance is its ability to subdue ‘the emotions in the crowds’ to a significant extent.
If Bitcoin’s market price is significantly higher than its realized value then the metric moves into the red zone, which indicates a potential market top. The metric entering the green zone indicates that Bitcoin’s current price is lower than its realized value and that the market may be approaching a bottom.
The chart shows that the 0.127 MVRV Zcore, when compared to Bitcoin’s current price, is within the same range of previous multiyear lows or cycle bottoms. The on-chain data and the technical analysis indicators discussed earlier suggest that BTC is undervalued. This makes it an ideal zone to build a long position.
Related: Official data confirms US recession, Bitcoin prices fall to $19K
The Reserve Risk metric is another interesting on-chain data point. Hans Hauge created the chart to show how confident Bitcoin investors are compared to the spot price.
The chart below shows that when investor confidence is high but BTC prices are low, the risk-to-reward ratio or Bitcoin attraction versus the risk involved in buying and holding BTC is higher.
Reserve Risk tends to move into the red zone when investor confidence is low but the price rises. Historical data shows that it is a good time for Bitcoin investors to start a Bitcoin position as Reserve Risk moves into the green zone.
Data from Glassnode and LookIntoBitcoin show that Reserve Risk trading is at its lowest level ever, and well outside the bounds of the green zone as of September 30.
Big Smokey, author of The Humble Pontificator Substack as well as resident newsletter author at Cointelegraph, wrote this newsletter. Big Smokey will be writing market insights, trending tips, analyses, and early-bird research about emerging trends in the crypto market every Friday.
These views and opinions are the author’s and do not necessarily reflect those of Cointelegraph.com. You should do your research before making any investment or trading decision.