For the bulls, the daily price action of Bitcoin (BTC) leaves much to be desired. At the moment, there are few signs of an imminent reversal.
Following the trend over the past six months, current factors continue to put pressure on the BTC price.
- Persistent Concerns Over Potential Tight Crypto Regulations.
- US Federal Reserve Policy, Rate Hikes, Quantitative Tightening.
- Geopolitical concerns related to the weaponization of high-demand natural resources imported by Russia, Ukraine, and the European Union.
- Strong risk-off sentiment due to possible US and global recession.
Combined, these challenges have made high volatility assets less attractive to institutional investors, and the euphoria seen in the 2021 bull market has all but disappeared.
So, while day-to-day price action isn’t encouraging, looking at longer-term indicators that measure Bitcoin’s price, investor sentiment, and valuation perceptions presents some interesting data points.
The market is still cheating in an oversold state
On daily and weekly timeframes, BTC price is bucking the long-term downtrend 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 starting to shrink.
Band tightening usually precedes directional movements, and price trading at long-term resistance is also usually indicative of strong directional movements.
Bitcoin’s plunge from March 28th to June 13th sent the Relative Strength Index (RSI) to a multi-year low, and a quick look at the indicators compared to BTC’s long-term price action. , shown to buy when the RSI is significantly oversold. It’s a profitable strategy.
While the near-term situation is dire, the price-agnostic view of Bitcoin and its market structure suggests that now is the perfect time to accumulate.
Now let’s compare Bitcoin’s multi-year price action against the RSI to see if any interesting dynamics emerge.
The chart speaks for itself in my opinion. Of course, further declines are possible and various technical and on-chain analytical indicators have yet to confirm a market bottom.
Some analysts are predicting a drop to the $15,000-$10,000 range, which could absorb the $18,000 buy wall and turn it into a bull trap. Aside from that event, increasing position size during the oversold weekly RSI outbreak had positive results for those brave enough to make a swing.
Another interesting metric to view on longer timeframes is the Moving Average Convergence-Divergence (MACD) Oscillator. Like the RSI, the MACD has become significantly oversold as the price of Bitcoin dropped to $17,600. We can see that the MACD (blue) has crossed the signal line (orange) but still remains in a previously untested region.
The histogram has turned positive and some traders are interpreting this as an early trend reversal sign, but given all the macro challenges facing cryptocurrencies, there is not much to rely on in this case. You shouldn’t.
What I find interesting is that while the Bitcoin price is making lower highs and lows on the weekly chart, the RSI and MACD are moving in opposite directions. This is known as a bullish divergence.
From a technical analysis perspective, the confluence of multiple indicators suggests that Bitcoin is undervalued. That said, the bottom does not appear to have hit given a series of issues not unique to cryptocurrencies continue to inject weakness into BTC’s price and the broader market. The drop to $10,000 is another 48% drop from BTC’s current valuation near $20,000.
Let’s see what the on-chain data currently shows.
MVRV Z-score
The MVRV Z-Score is an on-chain metric that reflects the ratio of BTC’s market cap to its realized market cap (the amount people paid for BTC compared to its current value).
according to collaborator David Puell:
“The indicator clearly shows the peaks and busts of the price cycle, highlighting the oscillations between fear and greed. It is to keep it to a certain extent.”
Basically, when Bitcoin’s market value is measurably higher than its actual value, the metric enters the red area, indicating potential market tops. When the metric enters the green zone, Bitcoin’s current value is below its realized price, indicating that the market may be nearing a bottom.
Looking at the chart, the current 0.127 MVRV Z-score is in the same range as the previous multi-year lows and cycle bottoms when compared to the Bitcoin price. Comparing the on-chain data with the aforementioned technical analysis indicators suggests that BTC is undervalued and is in the best zone for building long positions.
Related: Bitcoin Price Drops Below $19,000 As Official Data Confirms US Recession
reserve risk
Another on-chain data point that shows interesting data is the reserve risk metric. Created by Hans Hauge, this chart visually shows how a “confident” Bitcoin investor compares to his BTC spot price.
As shown in the chart below, when investor confidence is high and the price of BTC is low, the reward for the risk of buying and holding BTC or the attractiveness of Bitcoin falls into the green area.
During periods of low investor confidence and high prices, reserve risk moves to the red area. Historical data suggests that building a Bitcoin position when the reserve risk enters the green zone is a good time to establish a position.
As of Sept. 30, both LookIntoBitcoin and Glassnode data show reserve risk trades are at their lowest ever readings and outside the boundaries of the green zone.
This newsletter is humble pope Author of Cointelegraph Substack and Resident Newsletter. Every Friday, Big Smokey writes market insights, trend how-tos, analysis, and early research on potential emerging trends within the crypto markets.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. All investment and trading movements involve risk. You should do your own research when making a decision.
