FX.co ★ Bitcoin: Crypto community continues to look for signs of bottom

The cryptocurrency market has historically been cyclical. Cycles were formed around Bitcoin halving.

Halving occurs every time 210,000 blocks are mined. It happens about every four years. The most recent halvings occurred in 2012, 2016 and 2020.

In between halvings, the bull market is replaced by a bear market. Given the transparent nature of most blockchain networks, it is possible to look at the on-chain data to identify patterns and similarities between the current period and previous cycles.

Bearish Cycle Bottoming Indicators

On-chain analysts, based on data from Glassnode, are looking at several potential bear market bottom signals.

One metric is the supply profit and loss range, which shows the total supply of BTC in both profit and loss.

The values represent unrealized profit and loss since the data tracks the value of the price at the time the coins were acquired through trading or mining.

The lines showing the dynamics of these two indicators recently converged for the fifth time in the history of BTC. Previous events of this nature have occurred during bear markets near the cycle's lowest point.

The previous such convergence occurred in May 2020 during the global market crash due to COVID-19. In addition to the black swan that the coronavirus pandemic has become, convergence occurred in 2012, 2014 and 2019.

Although the coincidences lasted from six months to a year, every time the price of Bitcoin recovered, it hit an all-time high for three years.

Supply P&L bands are not a guaranteed bear market bottom indicator, but while history doesn't always repeat itself, it often plays out in a similar fashion.

Long-term and short-term MVRV

MVRV is a metric related to the ratio between realized and market capitalization of bitcoins. MVRV takes into account only positions with a maturity of at least 155 days and serves as an indicator for evaluating the behavior of long-term investors.

Like supply and loss bands, long-term holders' MVRV fell lower than short-term holders on only five occasions.

The periods are almost identical to the supply schedules that have appeared during each of the past bear markets and market crashes due to COVID-19.

Positions of short-term holders

The total number of bitcoins held by short-term holders has surpassed three million coins since cycle lows.

Short-term holders are often the most sensitive to price volatility, and the number of coins they hold is historically low at the beginning of the cycle.

There have been cases in history when the supply of short-term holders has reached similar levels. However, unlike other indicators, this has happened six times since 2011. Four of the cases are consistent with the other data described above, and in addition to these, short-term holder positions bottomed out in 2016 and 2021.

In recent weeks, one off-chain bear market bottom signal has also emerged. When Bitcoin fell from its all-time highs in the past, the point at which the mainstream publications declared "the crypto market is dead" was notoriously the bottom of the market.

Major publications declared Bitcoin dead 90 times in 2018 and 125 times in 2017. Currently, the cryptocurrency has only received 22 obituaries in 2022, so we are far from a market reversal signal if this observation is to be believed.

Three more reasons to recover

But not only the analysis of off-chain metrics allows cryptocurrency supporters to count on a reversal. Whether it's due to macroeconomic changes or just plain old bitcoin price cycles, three new reasons are being cited for why the major cryptocurrency could turn bullish from current values near two-year lows.

First in line is a theory involving a macromarket catalyst, courtesy of macro economist Henrik Zeberg.

In one of his latest tweets, he claims that Bitcoin still behaves like other risky assets, but specifically "not like gold."

The FTX scandal has weakened the correlation between BTC and stocks. However, there is no reason to dismiss the idea that this relationship will return.

Zeberg reminds that the tide lifts all boats, and if a rally in the risk asset area starts, it could send BTCUSD over $100,000.

According to another popular crypto trader, Alan Tardigrade, now is the time to pay attention to the weekly BTCUSD chart, which showed a 20-week bullish divergence.

This indicates a weakening of the momentum of the downward trend, which means that BTC may start an upward rally. This upward movement corresponds to Bitcoin's behavior after the COVID-19 market crash in March 2020.

Back to crypto-centric triggers and on-balance volume (OBV) is one of the indicators that gives an idea of possible bullish times.

OBV acts as a cumulative measure of buy and sell pressure by maintaining a running tally of volume across a given time period. It is similar to the cumulative volume delta, but includes more than just buying and selling trades.

The OBV is now showing a bullish divergence as well, causing a wave of interest in bitcoin analyst circles.

Bitcoin trader and technical analyst Mags draws attention to another important phenomenon. He notes that the RSI for BTCUSD is now showing a bullish divergence on the weekly timeframes that has never happened before, even at previous bear market lows.

"Every Bull Market Peak $BTC formed a bearish divergence on RSI followed by a bear market correction! This the first time ever BTC is printing a bullish divergence on weekly," he stressed.