Fly On Wall Street

Why Bitcoin Prices Could Be in Bottom Forming Territory if This Ratio Is Right Again

Bitcoin and the rest of the crypto market are experiencing an outflow of funds. The value of the nearly $3 trillion crypto landscape has since been reduced by more than half.

Despite the bear market, Bitcoin has remained resilient even after losing more than half its all-time high of $69,000 in November 2021. After hitting its second lowest low of $18,649 in the current bear run, the digital asset recovered to $21,758. It has remained within the $24,500 consolidation range since mid-August, as its rally has yet to break through this resistance point.

With the bears on the offensive, is it possible that Bitcoin will find support in the $20k range soon? A Glassnode report indicates the possibility.

Bitcoin Drawdowns from ATH

Bitcoin has remained the crypto space’s shining star, but it has not been without incident. According to a Glassnode report, Bitcoin downtrends soon after it reaches an all-time high (ATH) have put several people who invest in Bitcoin in a bind.

A Bitcoin heatmap depicts a tracked ATH drawdown to January 2015, when Bitcoin reached the bottom after an 85.15% drop. The trend continued in 2018, with a slight change occurring when Bitcoin fell 83.8% from its all-time high in 2017. A price downtrend in July 2021 found its bottom at 54.2% of its record value in March 2020.

Meanwhile, the value appears to be increasing again, with this year’s drawdown pegged at 72.5% of its $69,000 valuation.

Spot prices were weighed against the cost bases of various market participants to provide a more concrete picture of what was going on. The first is the overall market (MVRV), which compares all cryptocurrency investors’ spot prices and on-chain cost basis.

The Long-Term Holders (LTH-MVRV) are investors who have been holding for more than 155 years and have no plans to sell or liquidate their positions. The final set is the Short-Term Holders (STH-MVRV), which includes investors who buy Bitcoin and hold for less than 155 days on average. Short-term holders are likely to sell their Bitcoins.

MVRV Cohorts Point to a Likely Bottom Formation

Looking at a performance time-stamped from 2015 gives us an idea of what is going on with the Bitcoin asset right now. Since 2015, the MVRV has been 0.55, while the LTH-MVRV and STH-MVRV have been 0.46 and 0.49, respectively. This followed a 247-day period between 2014 and 2015 in which Bitcoin reached a low of $178.1 in early 2015.

The following event occurred in December 2018, and the MVRV score was 0.69, with the LTH-MVRV and STH-MVRV scores being 0.63 and 0.62, respectively, while this year’s cohorts have an MVRV of 0.84, LTH-MVRV of 0.85, and STH-MVRV of 0.59.

While the MVRV and LTH-MVRV have steadily increased over time, the STH-MVRV has steadily declined across all three stages.

This suggests a possible short-term selling spree in which investors may panic-sell their coins. More selling pressure will likely hit the popular cryptocurrency in the ongoing bear market, as evidenced by its drop from a mid-week rally of $22,000, which found support at the $20k price peg. This could be due to the US Consumer Price Index (CPI) report, which showed an 8.3% increase in food, shelter, and medical services.

Bitcoin will likely experience a brief bearish downtrend as investors withdraw funds to protect themselves. In a sustained bear market, it would fall slightly below its $20k perch to a probable bottom of $16,500.

Exit mobile version