By CNBCTV18.com Jan 28, 2022 7:25:25 AM IST (Published)
With all that’s going on, crypto holders are starting to wonder if Bitcoin will break away from this trend and bounce back. To help investors see through speculation, CoinTelegraph has rounded up five areas of interest that can help assess Bitcoin’s price action in the near future.
Bitcoin's week-long slide saw prices fall as low as $32,000. And while it has stabilised since then, it is still a very nervy time for investors. This latest plunge to $32,000 marked its lowest point since July last year. The only silver lining is that the $30,000 mark has remained unchallenged so far. However, concerns of continued losses still loom large.
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Bitcoin and other cryptocurrencies seem to be following the stock market trend, which has been a bit rocky since the beginning of 2022 due to the rapidly changing US Federal Reserve policy. With all that’s going on, crypto holders are starting to wonder if Bitcoin will break away from this trend and bounce back.
To help investors see through all this speculation, CoinTelegraph has rounded up five areas of interest that can help assess Bitcoin’s price action in the near future.
Reaching the 'generational bottom'
This weekend, Bitcoin saw a significant volume of out-of-hours trading. The phenomenon was attributed to weak hand investors purging their holdings due to FUD (fear, uncertainty, and doubt), leading to a new round of bitcoin losses. Weak hands are investors who typically lack conviction and often tend to get swayed by overall market sentiment.
Now bitcoin traders are looking at the $30,000 mark to test Bitcoin’s performance in the short term. Some believe that the price will drop to $31,500 before it starts to rise again.
Dylan LeClair, a senior analyst at UTXO Management, has looked at various on-chain aspects and highlighted Bitcoin's current cost basis as a potential clue for what he calls a ‘"generational bottom".
Cost basis is the aggregate price at which Bitcoin from various cohorts of investors was last moved. Combining it with other data can indicate the price point at which Bitcoin’s bear phase will end.
According to Leclair's analysis, the on-chain cost basis is $24,000.
Relative strength index
The Relative strength index or RSI is a metric that tells us how overbought or oversold an asset is at a given price point. Put simply, it identifies the relationship between the price of an asset and the actual demand.
RSI helps point out reversal points as the price reaches oversold or overbought zones. An under-30 RSI, for instance, means the market fall has been swift, and bears may take a breather. This might lead the market to trade in a range for some time.
Over the weekend, CoinTelegraph reported that the 14-day RSI for bitcoin had reached its lowest since the crash in March 2020 after COVID-19 struck.
Jeetesh Tipe, Founder and CIO at Mumbai-based crypto asset management firm MintingM, pointed out to Coindesk the weekly chart RSI is nearing 35, a level that has marked price bottoms in the past.
Bitcoin's weekly RSI has since jumped to 37. But even as the fall in prices still appears overdone on technical charts, demand from whales, or large crypto investors, remains elusive, per a Coindesk report.
However, RSI alone is not a precise indicator unless combined with other metrics. According to the report, crypto traders often read overbought/oversold RSI readings with blockchain metrics like whale demand, derivatives market data and macro factors.
Miners are not selling … for now
Miners are not selling their holdings. This is another indicator that Bitcoin's current price of around $37,000 can be a smokescreen.
Even though miners might face low or even negative profit margins, data covering movements from mining pools and known miner wallets indicates that miners are not looking to sell their bitcoin holdings. This is in continuance with a significant accumulation trend that began last year.
Illiquid supply is growing
Lex Moskovski, Chief Investment Officer at Moskovski Capital, has noticed an ongoing trend of coins becoming more inaccessible. At the same time, most people only focus on the price of the asset.
Data from Glassnode, a blockchain data and intelligence provider, shows that more and more of the circulating supply of Bitcoin is being drafted to cold storage.
The conversion of Bitcoin to illiquid has accelerated, emphasising the desire of traders to buy at price levels seen over recent weeks. Selling seems to be the last thing on their minds.
Bitcoin market sentiment
Data from the Crypto Fear & Greed Index, which analyses emotions and sentiments from different sources and crunches them into a number, shows the sentiment continues to remain at ‘extreme fear’ levels and is in line with the spot price performance of the asset.
A value of 0 on the indicators means ‘Extreme Fear’ while a value of 100 represents ‘Extreme Greed. Currently, the index is at 20.
The index has seen an ‘extreme fear’ low mark only a few times in history, the last weekend was one of those times.
(Edited by : Vijay Anand, Yashi Gupta)
EXPLAINERS
Explained: Why Bitcoin, Ether, and other cryptos crashed Friday
Bitcoin is currently trading at $35,700, even when trading activity has picked up significantly, indicating a mass sell-off in progress. The coin is down over 40 percent from its all-time high of $69,000. Meanwhile, as per data from coinmarketcap.com, the cryptocurrency market cap has declined by over 12 percent in the last 24 hours. What is the reason behind this massive sell-off? Let's find out
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