Bitcoin (BTC) is in a rut and the price of BTC is likely to remain in its current downtrend. But as I mentioned last week, when no one is talking about Bitcoin, that’s usually the best time to buy Bitcoin.
Over the past week, the price has fallen further, falling below $19,000 on September 6 and currently, BTC bulls are struggling to get back from $19,000-20,000 to support. Just this week, Federal Reserve Chairman Jerome Powell reiterated the Fed’s commitment to literally do whatever it takes to fight inflation “until the job is done,” and market analysts raised their forecast for interest rate hikes by 0.50 basis points to 0.75.
Basically, interest rate hikes and quantitative tightening are meant to crush consumer demand, which in turn eventually leads to lower costs of goods and services, but we’re not there yet. Further rate hikes plus QT are likely to drive equity markets lower and given their high correlation to Bitcoin price, further decline for BTC is the most likely outcome.
So, yes, there is no solid investment thesis for Bitcoin right now from a price action and short-term gains perspective. But what about those with a longer investment horizon?
Let’s quickly review 3 charts that suggest investors should buy Bitcoin.
Bitcoin Investor Tool: 2-Year MA Multiplier
Bitcoin price is currently down 72% from its all-time high of $69,000. In previous bear markets, the price of BTC experienced a 55% correction (July 21), a 71% decline in March 2020, and an 84% correction in December 2018. Although brutal to bear, the current correction of 72% is not outside the norm. from previous pullbacks from all-time highs.
Comparing this drawdown data to the 2-year MA multiplier, one will notice that the price fell below the 2-year moving average, bottomed out and then consolidated for several months before resuming the 12-year uptrend. year.
These areas are the “shaded” areas below the green 2-year moving average. Zooming in on the right side of the chart, we can see that the price is again below the 2-year moving average, and although there is no sign of a “bottoming out”, if the based on historical data, the price is currently in what could be described as a consolidation zone.
The golden ratio multiplier
Another interesting indicator based on the moving average and the Fibonacci sequence that suggests the price of Bitcoin is undervalued is the golden ratio multiplier.
According to LookIntoBitcoin creator Philip Swift:
“The chart explores Bitcoin’s adoption curve and market cycles to understand how the price may behave over the medium to long term. It does this by using multiples of the 350-day moving average (350DMA) of Bitcoin’s price to identify areas of potential resistance to price movement.
Swift further explained that “specific multiplications of the 350DMA have been very effective over time in determining Bitcoin price intracycle highs as well as major market cycle highs.” Basically, the indicator is:
“An effective tool as it is able to demonstrate when the market is likely to be overloaded in the context of Bitcoin adoption curve growth and market cycles.”
Currently, the price of BTC is below the 350DMA and similar to the 2-year MA multiplier. Averaging dollar costs down to extremely low levels has proven to be a sensible method of building a Bitcoin position.
A look at Bitcoin’s 1-week Relative Strength Index (RSI) also shows that the asset is nearly oversold. When comparing the weekly RSI to the candlestick chart of BTC, it is clear that accumulation during oversold periods is also a profitable tactic.
Related: A bullish Bitcoin trend reversal is a far-fetched idea, but this metric screams “buy”
Bitcoin MVRV Z-score
An on-chain indicator called MVRV recently hit its lowest score since 2015. The metric is essentially a ratio of BTC’s market capitalization to its realized capitalization, or in simpler terms, how much people have paid for BTC per month. relative to the current value of the asset.
According to Jarvis Labs analyst “JJ”, Bitcoin’s MVRV (market capitalization versus realized capitalization) indicator is showing an extremely low reading. The analyst explains:
The Z MVRV score provides insight into when Bitcoin is undervalued and overvalued relative to its fair price. According to analytics firm Glassnode, “When market value is significantly higher than realized value, it has historically indicated a market top (red area), while the reverse has indicated a market bottom (green area)” .
Looking at the chart, relative to the price of BTC, the current score of -0.16 MVRV is in the same range as previous multi-year and cyclical lows for the price of Bitcoin. A pure interpretation of the data would suggest that Bitcoin is in the middle of a bottoming process and possibly entering the early stages of accumulation.
Of course, its price could drop much further, and the bearish factors hitting the stock markets will likely continue to impact crypto prices as well, so none of the indicators mentioned above should be relied upon as solitary justification for the investment.
The crypto market is in bad shape, and that seems unlikely to change in the near term, but timing market lows is also impossible for most traders. So, what investors should be looking for is the confluence of a variety of metrics and indicators that fit their thesis.
Right now, most on-chain metrics and technical analysis indicators for Bitcoin suggest a reasonable dollar cost average in a manageable position. The key is risk management. Don’t invest more than you can afford to lose and you won’t have to worry about losing your shirt.
This newsletter was written by Big Smokey, the author of The Humble Pontificator Substack and resident newsletter writer at Cointelegraph. Every Friday, Big Smokey will write market insights, practical trend tips, analysis, and early research on potential emerging trends in the crypto market.
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