On-chain indicators suggest that Bitcoin (BTC) reached a market bottom

Be[In]Crypto takes a look at various on-chain indicators to determine if Bitcoin (BTC) has reached a bottom. The indicators analyzed will be: Hash Band, Adjusted Dormant Flow, Puell Multiple and Realized Losses.

Hash tapes

Hash bands are indicators based on the hash rate of BTC. They operate on the assumption that BTC bottoms out when miners capitulate. This means their mining costs are higher than the rewards they receive from mining.

Hash bands are created by the ratio of two simple moving averages (SMA) of the hash rate: the 30-day SMA and the 60-day SMA. A bullish crossover between these two MAs is considered a buy signal. The longer the 60-day SMA was below the 30-day SMA before the bullish cross (red), the stronger the buy signal.

Historically, the indicator has been extremely accurate in predicting market bottoms. With the exception of the current cross, there have been 13 previous bullish crosses, and they have all led to at least one short-term upward move. Also, the Jan 2012, Jan 2015, Jan 2019 and March 2020 crosses (black circles) led to absolute bottoms.

The current bullish crossover occurred on August 21st. So far, the BTC price has only dropped after the cross has been made. If an upward move does not happen soon, it will mark the first time in history that such a cross is not followed by a significant increase.

Adjusted quiescent current

Entity-Adjusted Dormancy Flow is the ratio of the market value to the annualized dormancy flow, which in turn measures the number of coin days destroyed and the volume with which they are destroyed.

Historically, values ​​below 250,000 have been considered oversold and marked market cycle bottoms. Such readings indicate that the market value is low in relation to the number of old coins being used.

So far, BTC has bottomed within this five times (black and red circles). The first four marked absolute bottoms, after which a very significant price rise occurred. However, the fifth (red circle), which occurred at the beginning of 2022, led to only a small upward movement. Afterwards, this was followed by a very sharp fall.

Afterwards, Adjusted sleep flow reached a record low of 126,000 in June. So while this is an extremely oversold value, the fact that it has never been reached before and is below the assumed lower limit of 200,000 (green box) puts the indicator in an unprecedented state.

Puell Multiple

Puell Multiple is an indicator that measures the health of Bitcoin miners. It is created by dividing the daily issuance value of bitcoins (in USD) by the 365-day moving average of daily issuance value. By doing so, it provides a visualization of the market cycle from the miners’ profitability.

Historically, values ​​between 0.3-0.5 (green) have marked market cycle bottoms, while those between 4-10 (red) have been associated with tops.

So far, the indicator has reached five lowest levels within this range. The first four (black circles) were all market cycle bottoms. It remains to be seen whether the fifth (red circle) will also mark a bottom. In this perspective, this indicator is very similar to Entity-adjusted sleep flow.

However, the caveat is that the fifth signal is not invalid yet, which leaves open the possibility that the indicator will retain its 100% success rate.

Realized losses

Finally a famous cryptocurrency analyst @TheRealPlanC tweeted a chart of the BTC-denominated realized loss indicator.

In its history, the indicator had twice moved above four Z-scores, doing so in December 2018 and March 2020. Both of these periods mark BTC price bottoms.

Afterwards, the indicator peaked at five Z-scores above the average in June. The indicator has now turned to the average, but an upward movement has not yet followed.

Interestingly, this value was reached at the same time as Puell Multiple and Entity-Adjusted Dormancy Flow hit their respective bottoms and Hash Ribbons gave a buy signal. So these four indicators are largely in agreement, the exception being the potential invalidation of the unit adjusted sleep flow.

If a sharp move up were to follow the June lows, it would confirm the validity of these indicators and the possibility that an absolute bottom has been reached.

For Be[in]Crypto’s latest Bitcoin (BTC) analysis, click here

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