What if the price of Bitcoin continues to fall! That’s why it’s time to start paying attention

For the bulls, the daily price action of Bitcoin (BTC) leaves a lot to be desired and, at the moment, there are few signs of an impending turnaround.

Following the trend of the past six or more months, current factors continue to put pressure on the price of BTC:

  • Persistent concerns of potential tight regulation of cryptocurrencies.
  • US Federal Reserve policy, interest rate hikes and quantitative tightening.
  • Geopolitical concerns related to Russia, Ukraine and the arming of high-demand natural resources imported from the European Union.
  • Strong sentiment of risk appetite due to the possibility of a US and global recession.

When combined, these challenges have made high-volatility assets less than attractive to institutional investors, and the euphoria seen during the 2021 bull market has largely dissipated.

Hence, daily price action is not encouraging, but looking at longer duration metrics that measure Bitcoin’s price, investor sentiment, and valuation perception presents some interesting data.

The market still flirts with oversold conditions

On the daily and weekly time frame, the price of BTC presses against a long-term descending trend line. At the same time, the Bollinger Bands, a simple momentum indicator reflecting two standard deviations above and below a simple moving average, are starting to contract.

Narrowing of the bands usually occurs prior to a directional move and price trading with long-term resistance is also typically indicative of a strong directional move.

Bitcoin’s sell-off from March 28 to June 13 brought its Relative Strength Index (RSI) to a multi-year all-time low and a quick glance at the indicator versus BTC’s long-term price action shows that the buying when the RSI is deeply oversold is a profitable strategy.

Relative strength index of the BTC / USD weekly chart. Source: TradingView

While the near-term situation is dire, an agnostic view of Bitcoin’s price and its market structure would suggest that now is an opportune time to hoard.

Now, let’s compare Bitcoin’s multi-year price action on the RSI to see if any interesting dynamics emerge.

BTC / USD weekly chart. Source. TradingView

In my opinion, the graph speaks for itself. Of course, further downside may occur and various technical and on-chain analysis indicators have yet to confirm a market low.

Some analysts have predicted a drop between $ 15,000 and $ 10,000, and it is possible that the buying wall at $ 18,000 will be absorbed and turn into a bullish trap. Aside from this event, the increase in position size upon the occurrence of an oversold weekly RSI has produced positive results for those brave enough to swing.

Another interesting metric to view over a longer time frame is the Moving Average Convergence Divergence (MACD) oscillator. Like the RSI, the MACD became deeply oversold as Bitcoin’s price plummeted to $ 17,600, and although the MACD (blue) broke through the signal line (orange), we can see that it still remains in untested territory in precedence.

MACD weekly BTC. Source: TradingView

The histogram has turned positive, which some traders interpret as a first sign of a turnaround, but given all the macro challenges that cryptocurrencies face, it shouldn’t be relied upon much in this case.

What I find interesting is that while Bitcoin’s price is painting 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.

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, that said, the bottom doesn’t seem to be there, as a bevy of non-cryptocurrency-specific problems continue to inject weakness into BTC’s price and the market at large. 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 right now.

MVRV Z Score

The Z-Score MVRV is an on-chain metric that reflects a ratio of BTC’s market capitalization to its realized capitalization (the amount people paid for BTC relative to its current value).

According to co-creator David Puell:

‚ÄúThis metric clearly shows the peaks and falls in the price cycle, highlighting the swing between fear and greed. The brilliance of the realized value is that it significantly dampens “crowd emotions”.

Basically, if Bitcoin’s market value is measurably higher than its realized value, the metric enters the red area, indicating a possible market spike. When the metric enters the green zone, it signals that Bitcoin’s current value is below its realized price and that the market may be close to its low.

Bitcoin MVRV Z Score. Source: Glassnode

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 lows and cycle lows. Comparing the on-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: The price of bitcoin drops below $ 19,000 as official data confirms the recession in the United States

Back-up risk

Another data point on the chain that shows interesting data is the reserve risk metric. Created by Hans Hauge, the chart provides a glimpse into how Bitcoin “confident” investors are at odds with BTC’s spot price.

As shown in the chart below, when investor confidence is high, but BTC’s price is low, the risk of rewarding or the attractiveness of Bitcoin versus the risk of buying and holding BTC enters the green zone.

During times when investor confidence is low but the price is high, the reserve risk moves into the red area. According to historical data, building a Bitcoin position when Reserve Risk enters the green zone was a good time to establish a position.

Bitcoin reserve risk. Source: LookIntoBitcoin

As of September 30, data from LookIntoBitcoin and Glassnode both show Reserve Risk trading at its lowest measurement ever and outside the green zone.

This newsletter was written by Big Smokey, the author of The Humble Pontificator Substack and resident author of the newsletter at Cointelegraph. Every Friday, Big Smokey will write market insights, how-to guides, analysis and preliminary research on potential emerging trends in the cryptocurrency market.