Bitcoin (BTC), which is now in its final week of January, will be starting at a level no one expected but many predicted — a 50% drop from all-time highs.
BTC/USD has fallen by half in two months. This is despite the fact that it was flying to $34,000. Naturally, there are concerns that these losses will continue.
Bitcoin is still at $30,000, just a little above its low of $58,000 to $29,000 last Summer.
Crypto holders will continue to pay attention to the correlation of their coins to traditional assets, as macro markets are facing tough times due to the rapidly-changing Federal Reserve policy. Is Bitcoin able to break this trend?
There are no signs yet that Bitcoin’s strength will see a significant rebound, but there are some hints below the headlines.
Cointelegraph offers a summary of five areas that are worth noticing this week as we assess the next steps in Bitcoin price action.
Bitcoin closes to a “generational bottom”.
The weekend brought new losses for Bitcoin bears, as Wall Street traders went out of business.
BTC’s current lows were $39,000 and $34,000 respectively. As liquidations increased, sentiment was taken to new heights.
As a way to get a better idea of the future prospects for Bitcoin, traders will be looking at a $30,000 test.
Another estimate of where relief might occur was $33,000 or $31,500. These estimates are still to be confirmed.
Dylan LeClair is a senior analyst at UTXO Management. He highlighted Bitcoin’s current price basis as a clue to what he called a “generational bottom”.
Cost basis is the sum of all bitcoins purchased by different investors. This calculation can be combined with other data to give insight into the likely bottom of a Bitcoin bear cycle.
The current network cost basis is $24,000. There is still room for the ratio of cost basis and price, also known as market value to realized (MVRV), ratio.
Current MVRV ratio is at the 38th percentile of historical readings. The past $BTC drops below the realized price (MVRV lower than 1.0) have been a source of generational buying opportunities. Although it is not clear if we will reach 24k, it would be very attractive to purchase. 8/ pic.twitter.com/sW35OEt0I4
Dylan LeClair (@DylanLeClair_ January 24, 2022
A CME futures gap is an alternative target that’s closer to home.
A wick of just over $36,000 on Friday prevented Bitcoin from reclaiming levels closer to $40,000 in a “gap-fill,” but a gap that was lower than July is still around $32,000.
Michael van de Poppe, a Cointelegraph contributor, predicted that the actual price action would occur at the beginning of the week when futures open up and CME begins trading.
CME Bitcoin futures 1-day candle charts Source: TradingView
Futures “gaps”, also known as the space between Friday’s close and Monday’s start, refers to the empty space in CME Group’s futures charts. Spot price can move in the interim period and then return to fill in the gap. This is often done within days, or even hours.
Spotlight on RSI
Cointelegraph reported this weekend that Bitcoin’s daily relative strengths index (RSI), was nearing its lowest level since March 2020, when the coronavirus virus crash.
Analysts who are looking to believe in a market rebound should look for RSI signals that are well below the “oversold” zone.
Daily Bitcoin RSI at its lowest level since March 12, 2020 (covid crash).
— Will Clemente (@WClementeIII January 22, 2022
Weekly RSI is back to the level it was at almost two years ago. Those who followed it made big profits as there were virtually unbridled BTC price increases the following year.
RSI is a measure of how overbought an asset is at a particular price point. The current low readings support the notion that Bitcoin’s value does not accurately reflect $35,000 because it is too overbought.
TechDev, a popular Twitter trader, analyst, and Twitter trader, believes the numbers are solid. RSI is on the weekly chart within a hair’s distance of the classic reversal zones that were present earlier in Bitcoin’s history.
Current #BTC weekly RSSI: 37 All bear bottoms from 29-35 March 2020 crash. 35 Closer than a top imo. GN all. pic.twitter.com/MzyLNnJ6IT
TechDev (@TechDev_52), January 23, 2022
Matthew Hyland, a fellow analyst, added a chart to his own: “Monthly RSI approaching level that have historically been some of the most lucrative buying opportunities in its entire historical history.”
Bitcoin monthly RSI vs. BTC/USD chart. Source: Matthew Hyland/Twitter
Bitcoin RSI suggests that the current price levels are not sustainable, on both lower and higher timeframes.
So far, miners are resilient
A third phenomenon that could subtly flag $35,000 Bitcoin as a red herring, is the selling of miner’s bitcoins — or lack thereof.
BTC/USD is currently at 50% of its all-time highs and within major estimates for global production costs to mine a single bitcoin.
According to Cointelegraph, they range from $34,000 to $38,000 according to the most recent estimates, which include that of Galaxy Digital, a crypto merchant bank.
However, data showing movements of mining pools and known miner wallets shows that miners don’t want to sell their BTC holdings, despite the fact that they may have low profit margins or even negative ones.
The significant accumulation trend that began last year shows no signs of reversing.
No #Bitcoin is being sold by miners. Do they know anything we don’t …?? #BTC pic.twitter.com/csaE5y6hQJ
— Plan(c), (@TheRealPlanC January 22, 2022
However, not all people believe that the status quo will weather the storm even if spot prices continue to fall.
Venturefounder, a popular Twitter account, stated that #Bitcoin’s worst dumps were caused by miners capitulation (Dec 2018, March 2020). When BTC fell below production costs it was at risk of miner capitulation.
“BTC was at high risk of miner capitulation in June at $30k, and now at risk again at $34k.”
Charles Edwards, CEO at crypto investment firm Capriole, provided the most recent version of the Bitcoin production cost indicator.
BTC/USD chart vs. Bitcoin production cost. Source: Venturefounder/ Twitter
The growing supply of liquid goods continues to grow
One analyst said that while concerns are focused on whether certain Bitcoin market participants will be sold and at what price they will, it is worth zooming out.
Lex Moskovski (CIO of Moskovski Capital), analysed the total supply of Bitcoins at the weekend and pointed out the continuing trend of coins becoming more difficult to access.
There are no spot price movements, but more and more supply is being diverted to cold storage, as accompanying data from Glassnode reveals.
Despite the downtrend, Bitcoin’s conversion to liquid actually increased in January. This demonstrates the investor desire to purchase at the price levels of recent weeks, and underlines the need to sell. It seems that selling is not something they are thinking about.
Moskovski predicted, “Panic if it makes you feel bad but Bitcoin illiquidity is going up continually.”
BTC/USD annotated graph vs. Bitcoin illiquid Supply Source: Lex Moskovski/Twitter
Glassnode had estimated that 76% was already liquid at the beginning of December. Additional findings revealed that approximately 100,000 BTC were becoming less liquid each month in December.
Moskovski said that the only thing that makes noise is the summer dip. He also spoke about the supply disruption which followed the May miner relocation.
The historic lows of the sentiment index are a little too high
It is unlikely that anyone is surprised by the low Bitcoin market sentiment.
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According to the latest data of the Crypto Fear and Greed Index, “extreme terror” continues to grow in tandem with spot price performance.
Cointelegraph reported earlier in the month that the Index had fallen to levels only a few times in its history. With the weekend seeing the Index return to those levels, it is becoming clearer just how doom market participants are feeling.
Current levels around 10/100 have been proven to be excellent buy points based solely on sentiment. Bitcoin settled there in both the pit of its 2018 bearish market in March 2020.
Screenshot: Crypto Fear and Greed Index Source: Alternative.me