Technical Indicators Suggest Crypto Crash Has Bottomed, So Why Isn’t Bitcoin Going Up?

Technical Indicators Suggest the Crypto Crash Has Bottomed

Summarizing the predicament in which the cryptocurrency market finds itself, noted (albeit somewhat controversial) Crypto Twitter profile PlanB tweeted a range of indicators in early July, all of which signal a bottom.

Source: Twitter

Starting with the 200-week moving average chart, this plots bitcoin’s average price over the previous 200 weeks, comparing it to its current price. Chartists tend to regard the current price dipping below the 200-week average as a sign of a market bottom, which is precisely what we’re seeing at the moment. It’s worth noting that this also happened in early 2019 and early-to-mid 2015, and in both cases it preceded a gradual climb in bitcoin’s price.

Likewise, bitcoin’s relative strength index (RSI) — which measures momentum in terms of price changes over a period of time — has reached an all-time low, outsinking even the troughs witnessed in 2015 and 2019.

Source: TradingView

The above chart plots bitcoin’s RSI (in purple) against its current price (shown using the green and red candlesticks). As with PlanB’s RSI chart, it too records a record low for the RSI, meaning that if we were going by technical indicators alone, now is the time to buy bitcoin.

Briefly turning to PlanB’s realized price chart, this shows that bitcoin’s current price has fallen below its realized price, a metric representing the average price of all bitcoins at the time each was last traded. Because the current price has crossed below this metric, it suggests an increased likelihood that current holders will hold onto their BTC rather than sell, since a sell would now indicate a loss for the ‘average’ trader.

Other metrics also indicate that the crypto crash has reached a bottom. Related to the realized price chart, Glassnode recently tweeted that only 49% of the bitcoin supply is now in profit. Previous selloffs — in March 2020, 2019 and 2015 — bottomed out with around 50% of coins remaining in profit.

Source: Glassnode

Interestingly, Glassnode also tweeted that bitcoin “has been withdrawn from exchanges at the most aggressive rate in history.” What this on-chain metric suggests is that the market is preparing to stop selling.

While it’s beyond the scope of this article to explain every single metric suggesting a bottom, here are a couple of others:

• MVRV-Z score: compares ratio of market cap to realized cap, showing when an asset is oversold. BTC’s MVRV-Z score is now where it was during previous bottoms.

• Puell multiple: a metric for indicating sell pressure from miners. It has also reached a historical bottom.

Taken together, it really does look like the crypto crash has reached a bottom. That said, bitcoin remains in the $20,000 to $22,000 range, and has remained so for around three weeks.

Is a Big Move Coming?

So what is happening? If you were to base your trading decisions solely on tidbits from Crypto Twitter, you’d possibly assume that bitcoin and other cryptocurrencies are about to spike upwards anytime now.

Source: Twitter

However, given the current state of the world, a big rally isn’t really likely anytime soon. People don’t obey lines drawn on a chart, and the macroeconomic situation will probably continue to deter serious investment for a while yet. Plus, historical data shows that even when bottoms are indeed reached, it can still take months for substantial upwards price action to occur.

It’s worth remembering that the cryptocurrency market’s descent since November has occurred at a time of rising inflation, as well as rising interest rates. Bitcoin fell below $40,000 in January after the release of Federal Reserve minutes showing that it would begin hiking rates from March. It fell again in April as the Fed indicated an even more hawkish approach to rate hikes, and then fell towards $20,000 in June after the central bank announced a 0.75% increase in its base rate.

Around the same time, stock markets around the world were falling amid mounting inflation and threats of an incoming recession, as well as further interest rate hikes. Such inflation has been worsened by the conflict in Ukraine, and with the cryptocurrency market becoming increasingly correlated with the stock market, the current bear market has taken place at a time when big indices such as the Nasdaq, Dow Jones and S&P 500 have all plummeted.

Investor sentiment has been dampened massively by macroeconomic data and the likelihood of a recession, with the US economy contracting by 1.6% in the first quarter of the year. The thing is, most economists believe that a full-blow recession will occur in 2023, while some are now forecasting that it’s “going to be prolonged.”

Needless to say, this is very bad news for crypto (not to mention the rest of the global economy). It suggests that technical indicators could remain at historical bottoms for a while yet, and that any predicted recovery (let alone a new bull market) could be delayed.

Of course, we can all hope for a speedy resolution to the conflict between Ukraine and Russia, something which could create the conditions for the world economy’s stabilization. And even if it does take months for the cryptocurrency market to properly recover, this doesn’t necessarily change the possibility that the indicators are right in signaling that now is a good time to buy.