Bitcoin appears to have entered an historical buy zone after falling almost 70% in the last seven months.
Key Takeaways
- Bitcoin has dropped by nearly 70% from its all-time high.
- Several metrics now suggest that the market bottom is near.
- Still, BTC could fall to $15,670 before the trend reverses.
Fear has struck the cryptocurrency market after Bitcoin dropped to $20,800 yesterday. Now, several technical and on-chain metrics suggest that the top cryptocurrency could be approaching a bottom.
1. Vital Support Zone Reached
Bitcoin has reached a vital support zone that could lead to a trend reversal. The pioneer cryptocurrency has seen its price drop nearly 70% over the past seven months. It went from trading at an all-time high of $69,200 in mid-November 2021 to recently reaching a new yearly low of $20,800.
Although the macroeconomic environment remains bearish given the looming uncertainty in the global financial markets, BTC appears to be nearing a market bottom.
The 200-week moving average has served as the last line of defense in previous bear markets. Since 2015, each time Bitcoin has retraced towards this critical support level, prices have begun to consolidate, forming a market bottom before a new bullish cycle begins.
BTC currently sits close to its 200-week moving average, which could be an initial sign that the trend is about to reverse.
2. Entity-Adjusted Dormancy Flow
Bitcoin’s Entity-Adjusted Dormancy Flow also suggests that the flagship cryptocurrency could be forming a market bottom. It considers the ratio of the current market capitalization to the annualized dormancy value to determine whether experienced market participants are spending their BTC.
This on-chain metric has almost perfectly timed every market bottom since 2011. Whenever there is a substantial decrease in spending from long-term holders, or “old hands,” the Entity-Adjusted Dormancy Flow drops below the 250,000 threshold, representing an excellent historical buy zone.
The Entity-Adjusted Dormancy Flow currently sits at an all-time low of 149,150, and could signal the end of the current downtrend.
3. Net Unrealized Profit/Loss Indicator
The Net Unrealized Profit/Loss (NUPL) indicator is also helpful when anticipating shifts in market sentiment and predicting market tops and bottoms. It relies on multiple on-chain data points to demonstrate potential investors’ emotions at a given time, which helps determine price movements.
The market sentiment around Bitcoin appears to have shifted from “Fear” to “Capitulation” after prices dropped to $20,800. This represents the last stage of a bearish cycle before the market sentiment shifts into “Hope” to signal the beginning of a new bull market.
4. Logarithmic Regression Lines
While technical and on-chain data shows multiple signs of a market bottom, there may still be room for Bitcoin to drop further before a recovery can begin.
Logarithmic Regression Lines define two key price levels where Bitcoin could bottom out. The non-bubble fit regression band sits at $23,210, while the non-bubble lower regression band hovers around $15,670.
At time of writing, Bitcoin currently trades between the non-bubble fit regression band and the non-bubble lower regression band, a signal that has marked the market bottom in previous downtrends.
Although prices can drop toward the non-bubble lower regression band like in March 2020, this indicator suggests that BTC could be presenting a unique opportunity for sidelined investors to re-enter the market.
It remains to be seen whether Bitcoin is entering a consolidation period before it enters a new uptrend, or if it will see a further correction to $15,670 first. Regardless, the risk-to-reward ratio appears favorable for those looking to take a chance at timing the market bottom.