Fear hit the cryptocurrency market afterBitcoin fell to $20,800 today . Now, several technical and on-chain indicators suggest that the top cryptocurrency may be approaching a bottom.
Bitcoin Shows Early Signs of a Bottom
Bitcoin has reached an important support area that could lead to a trend reversal.
The pioneer cryptocurrency has lost nearly70% in price over the past seven months. It traded from an all-time high of $69,200 in mid-November 2021 to a new yearly low of $20,800 recently.
While the macroeconomic environment remains bearish given the looming uncertainty in global financial markets, Bitcoin appears to be nearing a market bottom.
The 200-week moving average was the last line of defense in previous bear markets. Since 2015, every time Bitcoin has fallen back to this key support level, the price has consolidated, forming a market bottom before a new bullish cycle begins.
BTC is currently trading near its 200-week moving average, which could be an early sign of an imminent trend reversal.
BTC/USD weekly chart (Source: TradingView)
Bitcoin’s dormant flow of real corrections also suggests that the flagship cryptocurrency may be forming a market bottom. It considers the ratio of current market capitalization to annualized dormant value to determine whether experienced market participants are spending their BTC.
This on-chain metric has timed almost perfectly every market bottom since 2011. Whenever long-term holders or "veterans" spend significantly less, entity-adjusted dormant flow drops below the 250,000 threshold, which represents an excellent historical buy zone.
Bitcoin’s Entity Adjustment Dormant Flow (Source: Glassnode)
Real adjusted dormant flow is currently at an all-time low of 149,150, possibly signaling the end of the current downtrend.
The Net Unrealized Profit and Loss (NUPL) indicator is also helpful when forecasting changes in market sentiment and predicting market tops and bottoms. It relies on multiple on-chain data points to show potential investor sentiment at a given time, which helps determine price action.
Market sentiment around Bitcoin appears to have shifted from "fear" to "capitulation" after the price dropped to $20,800. This represents the final phase of a bearish cycle before sentiment shifts to "hope" to herald the start of a new bull market.
Bitcoin's net unrealized profit and loss (source: Glassnode)
While technical and on-chain data show multiple signs of a market bottom, Bitcoin may still have room to fall further before it begins to recover. The logarithmic regression line defines two key price levels where Bitcoin may bottom. The non-bubble fitted regression range is $23,210, while the non-bubble lower regression range hovers around $15,670.
Bitcoin is currently trading between the non-bubble fit regression band and the non-bubble low regression band, a signal that the market has bottomed out in the previous downtrend. Although the price may fall towards the non-bubble lower regression range as it did in March 2020, this indicator suggests that BTC may provide a unique opportunity for marginalized investors to re-enter the market.
Bitcoin Logarithmic Regression Bands (Source: IntoTheCryptoVerse)
It remains to be seen whether Bitcoin enters a period of consolidation before entering a new uptrend, or whether it will correct further to $15,670 first. Regardless, the risk-reward ratio appears to favor those looking to time the market bottom.
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