So what if the Bitcoin price continues to fall! Here’s why it’s time to start paying attention

For bulls, Bitcoin’s (BTC) daily price action leaves a lot to be desired, and at the moment there are few signs of an imminent reversal.

Following the trend of the last six or more months, the current factors continue to put pressure on the BTC price:

• Ongoing concerns about potential strict crypto regulation.
• US Federal Reserve policy, interest rate hikes and quantitative easing.
• Geopolitical concerns related to Russia, Ukraine and the weaponization of high-demand natural resources imported by the EU.
• Strong risk-off sentiment due to the possibility of a US and global recession.

Combined, these challenges have made high-volatility assets less than interesting to institutional investors, and the euphoria seen during the 2021 bull market has largely dissipated.

So, daily price action isn’t encouraging, but looking at longer-duration metrics that measure Bitcoin’s price, investor sentiment and perceptions of valuation present some interesting data points.

The market is still flirting with oversold conditions

On the daily and weekly time frame, BTC’s price is pushing towards a long-term descending trend line. At the same time, Bollinger Bands, a simple momentum indicator that reflects two standard deviations above and below a simple moving average, begin to contract.

Band tightening usually occurs before a directional move, and price trading at long-term resistance is also typically an indication of a strong directional move.

Bitcoin’s selloff from March 28 to June 13 sent its Relative Strength Index (RSI) to a multi-year record low, and a quick look at the indicator compared to BTC’s long-term price action shows that buying when the RSI is deeply oversold is a profitable strategy.

While the short-term situation is dire, a price agnostic view of Bitcoin and the market structure would suggest that now is an opportune moment to accumulate.

Now let’s compare Bitcoin’s multi-year price action over the RSI to see if any interesting dynamics emerge.

In my opinion, the chart speaks for itself. Of course, further downside may occur, and various technical and chain analysis indicators have yet to confirm a market bottom.

Some analysts have predicted a drop to the $15,000-$10,000 range, and it is possible that the buying wall at $18,000 will be absorbed and become a bull trap. Apart from this event, increasing position size at the occurrence of an oversold weekly RSI has produced positive results for those brave enough to take a swing.

Another interesting metric to watch in the longer time frame is the moving average convergence divergence (MACD) oscillator. Like the RSI, the MACD became deeply oversold when Bitcoin’s price collapsed to $17,600, and while the MACD (blue) has crossed above the signal line (orange), we can see that it is still hanging in previously untested territory.

The histogram has turned positive, which some traders interpret as an early trend reversal sign, but given all the macro challenges facing crypto, it should not be trusted much in this case.

What I find interesting is that while Bitcoin’s price is making lower highs and lower lows on the weekly chart, the RSI and MACD are moving in the opposite direction. This is known as a bullish divergence.

From the vantage point of technical analysis, the confluence of several indicators suggests that Bitcoin is undervalued. Now, with that said, the bottom doesn’t appear to be in, given that a host of non-crypto-specific issues continue to inject weakness into BTC’s price and the broader market. A drop to $10,000 is another 48% slide from BTC’s current value near $20,000.

Let’s take a look at what the data on the chain is currently showing.

MVRV Z-score

The MVRV Z-Score is an on-chain metric that reflects the ratio of BTC’s market value to realized capitalization (the amount people paid for BTC compared to its value today).

According to co-creator David Puell:

“This metric clearly shows the peaks and busts of the price cycle, emphasizing the oscillation between fear and greed. The brilliance of realized value is that it suppresses the ‘crowd sentiment’ significantly.”

Basically, if Bitcoin’s market cap is measurably higher than its realized value, the metric enters the red zone, indicating a possible market top. When the metric enters the green zone, it signals that Bitcoin’s current value is below the realized price and that the market may be nearing a bottom.

Looking at the chart, compared to Bitcoin’s price, the current 0.127 MVRV Z-score is in the same range as previous multi-year lows and cycle lows. Comparing the chain data against the technical analysis indicators mentioned earlier again suggests that BTC is undervalued and in an optimal zone to build a long position.

Related: Bitcoin price falls below $19K as official data confirms US recession

Reserve risk

Another data point on the chain that shows interesting data is the reserve risk calculation. Created by Hans Hauge, the chart gives a picture of how “safe” Bitcoin investors contrast against the spot price of BTC.

As shown in the chart below, when investor confidence is high but the BTC price is low, the risk of reward or Bitcoin attractiveness versus the risk of buying and holding BTC enters the green zone.

In times when investor confidence is low, but the price is high, Reserve Risk moves into the red area. According to historical data, building a Bitcoin position when Reserve Risk enters the green zone has been a good time to establish a position.

As of September 30, data from LookIntoBitcoin and Glassnode both show reserve risk trading at its lowest ever measurement and outside the boundaries of the green zone.

This newsletter was written by Big Smokey, the author of The Humble Pontificator Substack and resident newsletter writer at Cointelegraph. Every Friday, Big Smokey will write market insights, trending how-tos, analysis and early research on potential new trends within the crypto market.