Here’s what one of the smartest investors on the planet is saying about Bitcoin right now

Every month, Cathie Wood and her team at Ark Invest issue a report on the state of Bitcoin (BTC -0.70%). You can think of it as a monthly earnings report that analyzes the fundamentals of the Bitcoin blockchain and other macroeconomic factors that affect its price.

The reports are retrospective and analyze the previous month, so the last one looked at Bitcoin’s calculations in January.

With the token’s price increasing by nearly 40%, the best month since October 2021, there was no shortage of action taking place on the blockchain. Here’s a condensed version of what Ark analysts think about their current position.

A reversal of trends shows that the capitulation may be over

For much of 2022, the cryptocurrency market was full of controversy. These scandals wreaked havoc on prices, and Bitcoin was not spared.

However, the resurgence in January has brought renewed optimism, evident in a handful of key blockchain numbers that appear to have finally bottomed and even reversed since early 2023.

The 200-day moving average takes Bitcoin’s price over the previous 200 days and turns the volatile price into a smoother line. Although analysis of charts such as the 200-day moving average are not always reliable predictors of future performance, Ark analysts keep an eye on this metric because it is often considered an easy way to gauge momentum and overall market sentiment.

After staying below its 200-day moving average since December 2021, Bitcoin gained enough momentum to finally cross the threshold on January 13. Only time will tell if it stays there, but analysts believe this is indicative of a possible bottom in Bitcoin’s price.

Among the other more interesting findings from the report were trends found in the “spent output profit ratio” (SOPR). Ark created this statistic to measure the average buy price and sell price for each Bitcoin in circulation.

A SOPR value above 1 is an indication that the broader market is making profits, and levels below 1 mean they are making losses. After staying below 1 since April 2022, SOPR finally gained some momentum in January, reaching a value just above 1, indicating that the broader market is no longer in losses.

Ark analysts say they believe that if SOPR remains above 1, an upcoming bull market will be confirmed.

Solid fundamentals in a tough economic backdrop

While these metrics help paint a clearer picture of Bitcoin’s recovery, Ark believes there are still some macroeconomic factors that could hinder continued momentum. A decline in the money supply and an inverted yield curve are of greatest concern to Ark.

For the first time since the Great Depression and after World War II, the US money supply is declining. In Ark’s view, when this happens, it can limit the growth of risky assets like Bitcoin.

In addition, Ark is concerned that the inverted yield curve in the bond markets may indicate a looming recession. And if it comes true, it could put an end to any hope of a Bitcoin bull market.

Ark’s analysis is extremely detailed and robust. There is a lot to digest, but the general tone of the report is optimistic. Activity on Bitcoin’s blockchain shows that capitulation (strong selling pressure) may be at an end as key trends have reversed.

Although the economic backdrop remains unclear, there is reason for some cautious optimism in Bitcoin’s price. It will likely be a bumpy road. But in preparation for an eventual bull market return, an investment in crypto today looks like a bargain with the price still well below the all-time high of $68,000.