For the bulls, the daily price action of Bitcoin (BTC) leaves a lot to be desired, and for now there are few signs of an imminent turnaround.
Following the trend of the last six months or more, current factors continue to put pressure on the price of BTC:
- Lingering concerns over potential strict crypto regulation.
- US Federal Reserve policy, interest rate hikes and quantitative tightening.
- Geopolitical concerns related to Russia, Ukraine and the weaponization of high-demand natural resources imported by the European Union.
- Strong risk-off sentiment due to the possibility of a US and global recession.
When combined, these challenges have made high-volatility assets unattractive to institutional investors, and the euphoria seen during the 2021 bull market has largely dissipated.
So the daily price action isn’t encouraging, but longer-term metrics that measure Bitcoin’s price, investor sentiment and valuation perceptions present some interesting data.
The market is still flirting with oversold conditions
On the daily and weekly time frame, BTC price is pushing against a long-term downtrend line. At the same time, Bollinger Bands, a simple momentum indicator that reflects two standard deviations above and below a simple moving average, begin to narrow.
Narrowing bands usually occur before a directional move, and price trading with 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 longer-term price action of BTC shows to buy when the RSI is deeply oversold. it is a profitable strategy.
Although the short-term situation is dire, an agnostic view of Bitcoin prices and its market structure would suggest that now is a good time to accumulate.
Now, let’s contrast the price action of Bitcoin over several years against the RSI to see if any interesting dynamics emerge.
In my opinion, the chart speaks for itself. Of course, further downside could occur, and several technical indicators and chain analysis have yet to confirm a market bottom.
Some analysts have predicted a drop between $15,000 and $10,000, and it is possible that the $18,000 buying wall will be absorbed and become a bull trap. Apart from this event, increasing position size on the appearance of an oversold weekly RSI has yielded positive results for those brave enough to take a swing.
Another interesting metric to watch in the longer time frame is the Moving Average Convergence Divergence (MACD) oscillator. Like the RSI, the MACD became deeply oversold as the price of Bitcoin collapsed to $17,600, and while the MACD (blue) has crossed above the signal line (orange), we can see that it still remains in previously untested territory.
The histogram has turned positive, which some traders interpret as an early trend reversal sign, but given all the macro challenges facing crypto, not much confidence should be placed in this case.
What I find interesting is that while Bitcoin price is making 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, that said, the bottom doesn’t seem to be there, as a slew of non-crypto-specific issues continue to inject weakness into 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 chain data is showing right now.
MVRV Z-Score
The MVRV Z-Score is an on-chain metric that reflects a ratio of BTC’s market cap to 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 Bitcoin’s market value is measurably higher than its realized value, the metric enters the red area, indicating a possible 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 near the bottom.
Looking at the chart, when compared to the price of Bitcoin, the current 0.127 MVRV Z-Score is in the same range as the previous multi-year cycle lows and lows. Comparing the 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.
Related: Bitcoin price falls below $19,000 as official data confirms US recession
Reserve risk
Another data point in the chain that shows interesting data is the reserve risk metric. Created by Hans Hauge, the chart provides a visualization of how “confident” Bitcoin investors compare to the BTC spot price.
As shown in the chart below, when investor confidence is high, but the price of BTC is low, the risk-reward or the attractiveness of Bitcoin versus the risk of buying and holding BTC enters the green zone.
At times when investor confidence is low but the price is high, reserve risk moves into the red zone. Based on historical data, building 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 shows Reserve Risk trading at its lowest measurement and outside the boundaries of the green zone.
This newsletter was written by Big Smokey, author of The Humble Pontificator Substack and resident author of the Cointelegraph newsletter. Every Friday, Big Smokey will write market insights, trend guidance, analysis and early research on potential emerging trends within 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 business move involves risk, you should do your own research when making a decision.
