It may have dropped to six-month lows, but Bitcoin is still the subject of an increasing supply squeeze.
Bitcoin (BTC) is starting the final week of January in a place no one wanted but many warned about — a 50% drawdown from all-time highs.
A flight to $34,000 means that BTC/USD is now down by half in just two months, and perhaps naturally, concerns are that the losses could continue.
With $30,000 so far unchallenged, Bitcoin remains slightly above the trough of its dip from $58,000 to $29,000 last summer.
With macro markets facing a tough time of their own thanks to rapidly-changing Federal Reserve policy, crypto holders will be eyeing their coins’ correlation to traditional assets going forward. Can Bitcoin break the trend?
So far, there are few signs that a significant rebound is on the cards, but below the headlines, not all is as it seems when it comes to Bitcoin’s strength.
Cointelegraph presents a look at five areas worth taking note of this week when assessing what could be next for BTC price action.
Bitcoin nears a “generational bottom”
Bitcoin bears took no notice of out-of-hours trading on Wall Street with the weekend ushering in a new round of losses.
From $39,000 to current lows of $34,000, BTC showed no mercy as liquidations mounted and sentiment took a fresh beating.
Now, traders are naturally eyeing a test of $30,000 as a more definitive representation of how Bitcoin is likely to fare in the short to mid-term.
Other estimates for where some relief may occur previously lay at $33,000 and $31,500, these likewise yet to be reached.
Analyzing various aspects of the on-chain situation, Dylan LeClair, senior analyst at UTXO Management, highlighted Bitcoin’s current cost basis as a potential clue for what he calls a “generational bottom.”
Cost basis refers to the aggregate price at which bitcoins from various cohorts of investors were last moved. The calculation, when combined with other data, can give an insight into where a Bitcoin bear phase is likely to bottom out.
Currently, the network cost basis is $24,000. The ratio of cost basis to price, known as the market value to realized value (MVRV) ratio, likewise has further room to fall before putting in a classic floor signal of its own.
The current MVRV ratio is in the 38th percentile of historical readings.
In the past $BTC dips below realized price (MVRV below 1.0) have served as generational buying opportunities.
It's anyones guess if we get to 24k, but it would certainly be extremely attractive to buy.
— Dylan LeClair (@DylanLeClair_) January 24, 2022
Closer to home and a familiar target for BTC/USD is emerging in the form of a CME futures gap.
While a wick to just above $36,000 on Friday spoiled the opportunity for Bitcoin to reclaim levels closer to $40,000 as part of a “gap fill,” a lower gap from July remains at around $32,000.
“The actual price action will happen at the start of the new week, when futures open and CME starts to trade,” Cointelegraph contributor Michaël van de Poppe forecast.
Futures “gaps” refer to the empty space on CME Group’s futures chart between the end of trading on Friday and the start on the following Monday. If spot price moves in the intervening period, it has a habit of returning to “fill in” the gap, this often occurs within days or even hours.
Spotlight on RSI
Over the weekend, Cointelegraph reported on Bitcoin’s daily relative strength index (RSI) metric nearing its lowest levels since the coronavirus crash of March 2020.
Well below even its classic “oversold” zone, RSI is now becoming one of the most convincing signals for analysts keen to put faith in a market rebound.
Bitcoin daily RSI at its lowest since March 12th, 2020 (covid crash)
— Will Clemente (@WClementeIII) January 22, 2022
Not just daily, but weekly RSI is now de facto back where it dipped to almost two years ago. Thereafter, those who followed it profited big, as the next year saw practically unbridled BTC price gains.
RSI refers to how overbought or oversold an asset is at a given price point, and the current low readings thus lend weight to the idea that $35,000 does not accurately reflect Bitcoin’s value.
For popular Twitter trader and analyst TechDev, the numbers stack up, with RSI on the weekly chart within a hair of classic reversal zones from earlier in Bitcoin’s history.
Current #BTC weekly RSI: 37
All bear bottoms: 29-35
March 2020 crash: 35
Closer to a bottom than a top imo. GN all. pic.twitter.com/MzyLNnJ6IT
— TechDev (@TechDev_52) January 23, 2022
“Monthly RSI approaching levels that have been historically some of the best buying opportunities in its entire history,” fellow analyst Matthew Hyland added alongside a chart of his own.
On both higher and lower timeframes, Bitcoin RSI is therefore hinting that current price levels are unsustainable.
Miners hold firm… so far
Another phenomenon which could be subtly flagging $35,000 Bitcoin as a red herring is that of miner selling — or lack of it.
At 50% below all-time highs, BTC/USD is now within major estimates of global production costs for mining a single bitcoin.
Looking at data covering movements from mining pools and known miner wallets, however, it appears that despite presumably low or even negative profit margins, miners are in no mood to sell their BTC holdings.
A significant accumulation trend which began last year thus shows no sign of reversing — yet.
Miners are not selling #Bitcoin
— Plan©️ (@TheRealPlanC) January 22, 2022
Nonetheless, not everyone is convinced that the status quo can weather the storm if spot price action continues to decline.
“The worst dumps #Bitcoin ever had were due to miners capitulation (Dec 2018, Mar 2020), when BTC fell below production costs, it is at risk for miner capitulation,” popular Twitter account Venturefounder reiterated over the weekend.
“BTC was at risk for miner capitulation at $30k in June and at risk now again at $34k.”
He included the latest incarnation of the Bitcoin production cost indicator from Charles Edwards, CEO of crypto investment firm Capriole.
Illiquid supply keeps growing
While concerns focus on whether or not certain cohorts of Bitcoin market participants will sell and at what price, it pays to zoom out, one analyst says.
Analyzing the overall BTC supply at the weekend, Lex Moskovski, CIO of Moskovski Capital, drew attention to the ongoing trend of coins becoming ever more inaccessible.
Spot price moves aside, more and more of the supply is being siphoned off to cold storage, accompanying data from Glassnode shows.
In January, despite the downtrend, the conversion of Bitcoin to illiquid actually accelerated, underscoring the desire from investors to buy at price levels seen over recent weeks. Selling, it would seem, is the last thing on their minds.
“The only thing that is noise is the summer dip,” Moskovski added about the supply upheaval which followed last May’s miner relocation event.
Sentiment index a hair from historic lows
With all the downside, it is likely unsurprising that Bitcoin market sentiment is not performing well.
According to the latest data from the Crypto Fear & Greed Index, “extreme fear” just keeps getting worse in line with spot price performance.
Earlier in the month, Cointelegraph reported on the Index reaching lows seen only a handful of times in history, and with the weekend seeing a return to those levels, the doom being felt by the average market participant is becoming all the more clear.
Current levels of around 10/100 have in the past proven to be excellent buying points based on sentiment alone, with Bitcoin settling there in both March 2020 and the pit of its 2018 bear market.