For bulls, Bitcoin (BTC) daily price action leaves a lot to be desired, and right now there are few signs of an impending trend reversal.
Following the trend of the last six months or more, the current factors continue to put pressure on the BTC price:
- Ongoing Concerns About Possible Strict Crypto Regulation.
- Fed policy, rate hikes and quantitative tightening.
- Geopolitical concerns related to Russia, Ukraine and arming high-demand natural resources imported by the European Union.
- Strong risk appetite given the possibility of a US and global recession.
Taken together, these challenges have made high-volatility assets less attractive to institutional investors, and the euphoria of the 2021 bull market has largely evaporated.
So daily price action isn’t encouraging, but looking at longer duration metrics, which measure Bitcoin’s price, investor sentiment, and perception of valuation, provides some interesting data points.
The market is still flirting with oversold conditions
On the daily and weekly time frames, the price of BTC is pushing against a long-term descending trend line. At the same time, Bollinger Bands, a simple momentum indicator that reflects two standard deviations above and below a simple moving average, are beginning to narrow.
A tightening in the bands usually occurs before a directional move, and price trading at long-term resistance is also usually an indication 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 record low, and a quick look at the indicator versus BTC’s longer-term price action suggests buying when the RSI is heavily oversold is a profitable strategy.
BTC/USD weekly chart relative strength index. Source: TradingView
While the near-term picture is bleak, a price-agnostic view of Bitcoin and its market structure would suggest that now is an opportune moment for accumulation.
Let’s now contrast Bitcoin’s multi-year price action against the RSI to see if any interesting momentum is forming.
BTC/USD weekly chart. Source. trading view
In my opinion the table speaks for itself. Of course, further downside could occur and various technical and on-chain analysis indicators have yet to confirm a market bottom.
Some analysts have called a drop to the $15,000-$10,000 range and it is possible for the buying wall at $18,000 to be absorbed and turn into a bull trap. Aside from this event, increasing position size when an oversold weekly RSI occurs has produced positive results for those brave enough to take a swing.
Another interesting metric to look at on the longer time frame is the Moving Average Convergence Divergence (MACD) Oscillator. Like the RSI, the MACD became severely oversold as Bitcoin’s price collapsed to $17,600, and although the MACD (blue) broke above the signal line (orange), we can see that it still lingers in previously untested territory.
Weekly BTC MACD. Source: TradingView
The histogram has turned positive, which some traders are interpreting as an early trend reversal sign, but given all the macro challenges crypto is facing, it should not be relied on too much in this case.
What I find interesting is that while the price of Bitcoin is drawing lower highs and lower lows on the weekly chart, the RSI and MACD are moving in opposite directions. This is called bullish divergence.
BTC/USD weekly chart reflecting bullish divergences. Source: TradingView
From a technical analysis perspective, the confluence of multiple indicators suggests that Bitcoin is undervalued. Now with that being said, it appears the bottom has not yet been reached as a bevy of non-crypto specific issues continue to weaken 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 is showing at the moment.
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 value today).
According to co-creator David Puell:
“This metric clearly shows the peaks and busts of the price cycle, emphasizing the oscillation between fear and greed. The brilliance of the realized value is that it significantly dampens the “emotions of the masses.”
Basically, when Bitcoin’s market value is measurably 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 that the market could be nearing a bottom.
Bitcoin MVRV Z-Score. Source: Glassnode
Looking at the chart, the current MVRV Z-Score of 0.127 versus Bitcoin’s price is in the same range as previous multi-year lows and cycle lows. Comparing the on-chain data with the aforementioned technical analysis indicators once again suggests that BTC is undervalued and in an optimal zone for building a long position.
Related: Bitcoin price falls 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. Chart created by Hans Hauge shows how “confident” Bitcoin investors are regarding BTC’s spot price.
As illustrated in the chart below, when investor confidence is high but the BTC price is low, the risk to the reward or attractiveness of Bitcoin enters the green compared to the risk of buying and holding BTC.
At times when investor confidence is low but price is high, reserve risk moves into the red. According to historical data, starting a Bitcoin position when reserve risk turns green was a good time to start a position.
Bitcoin reserve risk. Source: LookIntoBitcoin
As of September 30, data from LookIntoBitcoin and Glassnode both show that Reserve Risk is trading at its lowest-ever level and outside the boundaries of the green zone.
This newsletter was written by Big Smokey, author of The Humble Pontificator Substack and resident newsletter writer at Cointelegraph. Every Friday, Big Smokey will be writing market insights, trend guides, analysis and early bird 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 do your own research when making a decision.
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