Bitcoin has fallen nearly 70% from its all-time high. There are several indicators now that the market is nearing a bottom. Nonetheless, BTC could drop to $15,670 before the trend reverses.
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Fear hit the cryptocurrency market after Bitcoin fell to $20,800 today. Now, some technical and on-chain indicators suggest that the top cryptocurrency may be approaching a bottom.
Bitcoin shows early signs of bottoming
Bitcoin has reached an important support area that could lead to a trend reversal.
Over the past seven months, the price of the pioneer cryptocurrency has fallen by nearly 70%. It traded from an all-time high of $69,200 in mid-November 2021 to a recent yearly low of $20,800.
While the macroeconomic environment remains bearish given the looming uncertainty in global financial markets, Bitcoin appears to be nearing a market bottom.
The 200-week moving average was the last line of defense in previous bear markets. Since 2015, every time Bitcoin fell back to this key support level, prices began to consolidate, forming a market bottom before a new bullish cycle began.
BTC is currently near its 200-week moving average, which could be the first signs of an imminent trend reversal.
Bitcoin’s physical adjustment dormant stream also suggests that the flagship cryptocurrency may be forming a market bottom. It considers the ratio of current market cap to annualized dormant value to determine if seasoned market participants are spending their BTC.
This on-chain metric has timed nearly every market bottom perfectly since 2011. Whenever long-term holders or “veterans” spend significantly less, the entity’s adjusted dormant flow drops below the 250,000 threshold, representing an excellent historical buy zone.
Entity adjusted dormant flows are currently at an all-time low of 149,150, possibly signaling the end of the current downtrend.
The Net Unrealized Profit and Loss (NUPL) indicator is also helpful when predicting changes in market sentiment and predicting market tops and bottoms. It relies on multiple on-chain data points to demonstrate the sentiment of potential investors at a given time, which helps determine price action.
The market sentiment around Bitcoin appears to have shifted from “fear” to “capitulation” after the price fell to $20,800. This represents the final phase of a bearish cycle before sentiment turns “hope” to herald the start of a new bull market.
While technical and on-chain data show multiple signs of a market bottom, Bitcoin may still have room to fall further before it begins to recover. The logarithmic regression line defines two key price levels where Bitcoin may bottom. The non-bubble fitted regression range is $23,210, while the non-bubble lower regression range hovers around $15,670.
Bitcoin is currently trading between the non-bubble fitted regression band and the non-bubble low regression band, a signal that the market has bottomed out in a previous downtrend. While prices may fall into non-bubble lower reversionary territory as they did in March 2020, the indicator suggests that BTC may present a unique opportunity for marginalized investors to re-enter the market.
It remains to be seen if Bitcoin will enter a consolidation period before entering a new uptrend, or if it will correct further to $15,670 first. Regardless, the risk-reward ratio appears to favor those looking to time the market bottom.
Disclosure: At the time of writing, the author of this article owns BTC and ETH.
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