For bulls, the daily price action of Bitcoin (BTC) leaves a lot to be desired and there is little sign of an imminent reversal at the moment.
Following the trend of the last six months or more, current factors continue to put pressure on the price of bitcoin:
Persistent fears of possible tight regulation of cryptocurrencies.
US Federal Reserve policy, interest rate hikes and quantitative easing.
Geopolitical concerns related to Russia, Ukraine and the weaponization of the coveted natural resources imported by the EU.
Risk appetite is strong due to the possibility of a US and global recession.
When these concerns come together, highly volatile assets become less interesting to institutional investors, and the euphoria experienced during the 2021 bull market has largely faded.
As such, the daily price action is not encouraging, but looking at longer-term indicators that measure the price of bitcoin, investor sentiment and valuation perceptions provides some interesting data.
The market is still flirting with oversold conditions
On the daily and weekly time frames, the BTC price is pushing on the long-term downtrend line. Meanwhile, the Bollinger Bands indicator, a simple momentum indicator that shows two standard deviations above and below the simple moving average, has started to decline.
Pinch bands usually occur before a directional move, and price trading at a long-term resistance level also indicates a strong directional move.
The selloff in bitcoin from March 28 to June 13 sent the RSI to a multi-year low, and a quick look at the indicator versus BTC’s long-term price action shows that buying when the RSI is heavily oversold is a profitable strategy.
Relative strength index for the weekly BTC/USD chart. Source: TradingView
While the situation is dire in the short term, a neutral view of Bitcoin’s price and market structure suggests that it is time to accumulate.
Now let’s compare bitcoin’s price action over the years with the RSI to see if there are any interesting dynamics.
Weekly BTC/USD Chart. source. trade view
In my opinion, the chart speaks for itself. Of course, further declines may occur, and many technical analyzes and indicators on the chain have yet to confirm the market bottom.
Some analysts expected a drop to the $15,000-$10,000 range, with the potential for the $18,000 buying wall to become a bull trap. Regardless of this event, the increase in position size when the weekly oversold RSI occurs has produced positive results for those brave enough to take the risk.
Another interesting metric to watch over a longer time frame is the Moving Average Convergence-Divergence (MACD) oscillator. Like the RSI, the MACD became oversold when the price of bitcoin fell to $17,600, and although the MACD (blue) crossed the signal line (orange), we can see that it remains in the untested territory.
Weekly MACD for BTC. Source: TradingView
The chart turned positive, which some traders interpret as an early sign of a trend reversal, but given all the usual problems that cryptocurrencies face, too much confidence should not be taken in this case.
What I find interesting is that while the price of bitcoin 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 bullish divergence.
The weekly BTC/USD chart reflects a bullish divergence. Source: TradingView
In terms of technical analysis, the confluence of several indicators indicates that bitcoin is undervalued. Now, however, the bottom doesn’t seem to exist as a number of non-cryptocurrency issues continue to drive down the price of BTC and the market as a whole. The drop to $10,000 is another 48% drop from Bitcoin’s current value of around $20,000.
Let’s see what the row data shows now.
The MVRV Z-Score is an on-chain metric that reflects the ratio of BTC market value to realized capitalization (the amount people paid for BTC compared to its value today).
According to co-author David Bell:
This indicator clearly shows the peaks and troughs of the price cycle, with an emphasis on fluctuations between fear and greed. The brilliance of the achieved value lies in the fact that it largely suppresses the “feelings of the masses”.
Essentially, if Bitcoin’s market cap is noticeably higher than its realized value, the scale turns red, indicating a potential market top. When the scale enters the green zone, it indicates that the current value of bitcoin is below the strike price and that the market may be bottoming.