How Bitcoin On-Chain Signals Present a Solid Case for a Market Bottom

Bitcoin price remains below its previous record high of five years ago. The shocking decline has been one of the worst crypto winters on record, and the market is bracing for continued meltdown.

However, a number of on-chain indicators in BTC can provide clues as to how close we are to a bottom. Let’s take a look.

A series of six chain indicators screams: Bitcoin Bottom is in

Bear markets are brutal in Bitcoin or otherwise, because the bottom is only known in hindsight. The feeling that markets will fall forever creates a fear that freezes investors from buying at long-term lows.

Technical analysis is one tool that can be used to find oversold conditions or other signals that support the idea of ​​a bottom. Unique to cryptocurrencies, is a subset of quantitative fundamental analysis that focuses on chain signals. Several such tools potentially suggest that a bottom is in.

Here we have the Puell Multiple. The Puell multiple is calculated by dividing the daily issuance value of bitcoins (in USD) by the 365-day moving average of daily issuance value.

Puell Multiple | Source: glassnode

Bitcoin Reserve Risk currently shows the most attractive risk/reward setup ever. Reserve risk is defined as price / HODL Bank. It is used to assess the confidence of long-term holders in relation to the price of the native coin at a given time.

Bitcoin Reserve Risk | Source: glassnode

In this chart we have the MVRV Z-score. The MVRV Z-Score is used to assess when Bitcoin is over/undervalued relative to its “real value”.

MVRV Z-Score | Source: glassnode

Net realized losses are the largest ever. Net realized profit/loss is the net profit or loss of all moved coins, and is defined by the difference between realized profit – realized loss.

Net Realized Profit/Loss | Source: glassnode

Realized profit-to-value ratio is also in the bottom zone. Realized profit-to-value ratio is defined as the ratio between realized profit and realized ceiling. This metric compares profit taking in the market to its total cost basis on a dollar-for-dollar basis.

Realized Profits-to-Value Ratio | Source: glassnode

Finally, net unrealized profit/loss shows capitulation. Interestingly, BTC never quite reached a state of euphoria and greed during the last market peak. The dataset also becomes less volatile over time, much like the Bitcoin price itself. Net unrealized profit/loss is the difference between relative unrealized profit and relative unrealized loss.

Net Unrealized Profit/Loss | Source: glassnode

While none of these signals confirm that the bottom is in for Bitcoin price action, each tool is in a zone that has historically been where previous bear markets have ended. Should the top cryptocurrency by market capitalization bottom here, it would be the smallest maximum withdrawal in Bitcoin history.

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Featured image from iStockPhoto, Charts from TradingView.com