Bitcoin (BTC), which has fallen by more than 67% in 2022, is now trading between tight trading ranges defined by $28,000 interim support and $30,000.500 interim resistance.
This selloff is due to the Federal Reserve’s hawkish policies and uncertainties in crypto markets led by Terra, an algorithmic stabilitycoin project whose native token LUNA dropped by 99% earlier this month.
However, Bitcoin’s slide has begun to slow as May draws near, leaving speculators hopeful that the token will bottom out.
This is how #Bitcoin might look. You can see in the lower left corner that we had a double bottom prior to getting a greenwave. The wedge is currently at its bottom. We could go lower and create another double bottom before we reverse. pic.twitter.com/feuzp5tiDZ
— BitcoinAlArab (@BitcoinAlArabx) May 23, 2022
Arcane Research’s latest weekly report notes that Bitcoin’s Fear and Greed Index, (F&G), also suggests the same scenario.
Bitcoin F&G readings at March 2020 lows
Bitcoin’s F&G scored 8 on May 17 which indicated “extreme fear,” the first time since March 2020.
Arcane stated, “We see that purchasing fear has previously been profitable when measuring median and average return of previous extreme fear periods,” while citing four instances in which Bitcoin’s F&G dropped to 8.
After reaching “extreme fear” levels, the Bitcoin price returns medianly. Source: Arcane Research
Jarvis Labs market researcher Ben Lilly said that Bitcoin’s F&G Index falling below 10 indicates the possibility of the market bottoming. He said that it is a good strategy to buy Bitcoin when the F&G score falls below 10.
It was found that the strategy you held for less time yielded better results. The strategy that you sold when F&G rose above 35 (yellow lines in the chart [below]), produced better results than those with readings of 50 (orange), and 80 (red).
F&G returns Bitcoin Source: Ben Lilly’s Twitter Handle
Arcane also pointed out that not all F&G scores are guaranteed bullish retracement movements in the future; some have preceded continued selloffs. Bitcoin fell nearly 11% on April 7, 2018, only sixty days after its F&G reached extreme fears levels.
More indicators indicate bottom
There are many on-chain indicators that indicate a possibility of Bitcoin’s future rise.
For instance, Glassnode’s MVRZ Z-Score, which assesses when Bitcoin is undervalued/overvalued based on its “fair value,” is nearing the green zone that had preceded the crypto’s massive rebound rallies, as shown in the chart below.
Bitcoin MVRV Z Score. Source: Glassnode
The Long Term Output profit Ratio (LTHSOPR) indicator which “evaluates market participants’ profit ratio by comparing outputs at spent time to created times” also indicates that Bitcoin is nearing its bottom.
In particular, a value below 1 indicates that long-term Bitcoin owners could lose their Bitcoins. A value of 1 indicates that they can sell their Bitcoins in profit.
The LTH-SOPR was 0.72 as of May 25. This could indicate a potential bottom in Bitcoin markets, since people won’t be tempted to sell BTC for losses.
Bitcoin LOTH.SOPR (SMA7) Source: CryptoQuant
BTC remains in the midst of selloff warnings
The positive bottom indicators are still visible in contrast to some other bearish signals elsewhere in the market. This calls for as low at $15,500 or even below $10,000
Scott Minerd (chief investment officer at Guggenheim) claims that Bitcoin is heading to $8,000, which would represent a 70% drop in price from today. Minerd points out that the Federal Reserve is hawkish for its bearish view on Bitcoin. The daily correlation between Nasdaq and Bitcoin has been positive since February 2022.
BTC/USD and Nasdaq100 correlation. Source: TradingView
Technically, Bitcoin could fall further towards the $22,000-$26,000 mark before it reaches its bottom.
Related: Bitcoin death cross data shows 43% drop in BTC prices due to bear market
These levels coincided with two historical support levels, the 200-day exponential moving mean (200-week EMA) and the 200 day simple moving average (220-week SMA) — that marked the end to BTC’s previous bearish periods.
BTC/USD weekly chart. Source: TradingView
“Towards the downside the $25,000 bottom on May 12th is closest support level below $29,000,” added Jalan Mellerud and Vetle Lunde, Arcane’s researchers. They also noted that Bitcoin’s “next crucial support level” could be $20,000, which would correspond to the 2017 peak. Excerpts:
“Towards the upside,” $30,500 was a strong resistance area for the past week. The next major resistance area is $35,000 if BTC breaks through the resistance. You should do your research before making any investment or trading decision.