Fear hit the cryptocurrency market after Bitcoin plummeted to $ 20,800 today. Now, several technical and chain metrics suggest that BTC may be near the bottom. Furthermore, an economist is trying to predict the end of the bear market.
“Bitcoin shows first signs of decline”
According to analysts, Bitcoin has reached a life support zone which could lead to a turnaround. cryptocurrency.comAs follows, BTC has seen its price drop by around 70% over the past seven months. As of mid-November 2021, it was trading at the ATH level of $ 69,200. However, it recently hit a New Year’s low of $ 20,800.
Considering the uncertainty on global financial markets, the macroeconomic environment is in a downward trend. However, analysts believe that BTC is approaching a market base. The 200-week moving average was the last line of defense in previous bear markets.
Since 2015, whenever Bitcoin has returned to this critical support level, prices have started to consolidate. It then formed a market base before the start of a new bullish cycle. BTC is currently close to its 200-week moving average, which could be the first sign that the trend is about to reverse.
One week BTC chart / Source: TradingView
What does the entity-adjusted dormancy flow show for BTC?
Bitcoin’s entity-adjusted dormancy flow suggests that BTC is likely to form a market base. The indicator takes into account the relationship between current market cap and annual dormant value to determine whether experienced market participants are spending their BTC.
This on-chain metric has timed every market low almost perfectly since 2011. When there is a significant drop in spending by long-term holders or “old hands”, the metric drops below the 250,000 mark. And according to analysts, it represents an excellent historical buying zone.
Entity-adjusted dormancy flow currently stands at an all-time low of 149,150. So it is likely to mark the end of the current downtrend.
Is there “hope” in market sentiment for Bitcoin?
The Net Unrealized Profit / Loss (NUPL) indicator predicts changes in market sentiment. It also works well for predicting the ups and downs of the market. It relies on multiple data points on the chain to show the emotions of potential investors at any given time. This, in turn, helps determine price movements.
Market sentiment around Bitcoin appears to have shifted from “Fear” to “Capitulation” after prices dropped to $ 20,800. This represents the final stage of the bearish cycle before market sentiment turns into “hope” to signal the start of a new bull market.
Analysts look at the logarithmic regression lines for Bitcoin
Analysts evaluating the metric draw the following conclusions. Technical data and on-chain indicators show multiple signs of a market low. However, there may still be room for Bitcoin to drop further before a recovery begins. The logarithmic regression lines describe two key price levels at which Bitcoin can bottom out. The bubble-free regression band is $ 23,210. The bubble-free subregression band is hovering at $ 15,670.
Bitcoin is currently trading between the bubble-incompatible regression band and the bubble-free subregression band. This is a signal that the market has bottomed in previous bearish trends. It is possible for prices to fall into the bubble-free lower regression band as in March 2020. However, this indicator shows that BTC could present a unique opportunity for fringe investors to re-enter the market.
It is unclear whether Bitcoin entered a period of consolidation before entering a new uptrend. Furthermore, it is not yet known whether it will see another correction towards $ 15,670 first. Regardless, the risk-reward ratio looks good for those looking for a chance to time the market bottom.
The bottom may be close, but the recession could still last 18 months
Economist Raoul Pal shows the most interesting opportunities of the current market situation. Pal doesn’t seem surprised by the continued decline in cryptocurrency prices. According to him, a drop of more than 60% over a 5-10 year time horizon is common.
That’s why he recommends looking at the five-year exponential moving average. The price of Bitcoin (BTC) normally stays below this critical level for no more than 30 days. On the other hand, BTC still has a significant drawback. Pal expects the macroeconomic situation to return to normal within 12-18 months.
At the same time, Raoul Pal’s divergence log regression model, RSI metric and DeMark weekly charts indicator suggest that we have entered the “buy” zone and that the bottom may be near. For Pal, the market offers incredible opportunities for long-term portfolio management. Pal says:
I am preparing to add significantly to my crypto positions. Probably next week and by July.
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