Bitcoin (Bitcoin) begins the last week of January in a place no one wanted but many have warned about – a 50% drop from all-time highs.
A flight to $34,000 means that BTC/USD is now down by half in just two months, and perhaps there is a natural concern that the losses could continue.
At $30,000 so far unchallenged, Bitcoin remains slightly above the bottom of its plunge from $58,000 to $29,000 last summer.
As the macro markets face their own rough patch thanks to the Federal Reserve’s rapidly changing policy, crypto holders will keep an eye on their coins’ correlation to traditional assets going forward. Can Bitcoin break the trend?
So far, there are few signs that a meaningful recovery is imminent, but under the headlines, all is not as it seems when it comes to Bitcoin’s strength.
Cointelegraph presents a look at five areas worth paying attention to this week when considering what could be next for BTC price action.
Bitcoin Nearing a “Generational Low”
Bitcoin bears took no notice of after-hours trading on Wall Street as the weekend ushered in a fresh round of losses.
From $39,000 to recent lows of $34,000, BTC showed no mercy as liquidations mounted and sentiment took a new hit.
Now, of course, traders are eyeing a test of $30,000 as a more definitive representation of how Bitcoin will fare in the short to medium term.
Other estimates for where there could be some relief, previously seen at $33,000 and $31,500, those have yet to be achieved as well.
Dylan LeClair, senior analyst at UTXO Management, analyzed various aspects of the on-chain situation and highlighted Bitcoin’s current cost base as a potential indicator of what he calls a “generational bottom”.
The cost basis refers to the total price at which bitcoins were recently moved by different cohorts of investors. The calculation, when combined with other data, can provide insight into where a Bitcoin bear phase is likely to bottom.
Currently, the network cost basis is $24,000. The cost base to price ratio, known as the Market Value to Realized Value Ratio (MVRV), also has room to fall before it sets its own classic bottom signal.
The current MVRV ratio is in the 38th percentile of historical readings.
In the past $BTC Dips below realized price (MVRV below 1.0) have served as generational buying opportunities.
Anyone can imagine whether we will reach 24,000, but it would certainly be extremely attractive to buy.
8th/ pic.twitter.com/sW35OEt0I4
— Dylan LeClair (@DylanLeClair_) January 24, 2022
Closer to home and a known target for BTC/USD is emerging in the form of a CME futures gap.
While a wick to just above $36,000 on Friday spoiled an opportunity for Bitcoin to recapture levels closer to $40,000 on a gap fill, a lower gap from July remains around $32,000.
“The actual price action will happen at the beginning of the new week when futures open and CME starts trading,” said Cointelegraph contributor Michaël van de Poppe forecast.
CME Bitcoin Futures 1-Day Candlestick Chart. Source: TradingView
Futures “gaps” refer to the blank space on CME Group’s futures chart between the close of trading on Friday and the start of trading the following Monday. In the meantime, if the spot price moves, it has a habit of coming back to “fill in” the gap, this often happens within days or even hours.
RSI in the spotlight
Cointelegraph weekend reported on Bitcoin’s daily Relative Strength Index (RSI), nearing its lowest level since the March 2020 coronavirus crash.
Well below its classic “oversold” zone, the RSI is now becoming one of the most compelling signals for analysts wanting confidence in a market recovery.
Bitcoin Daily RSI at Lowest Since March 12, 2020 (Covid Crash)
— Will Clemente (@WClementeIII) January 22, 2022
Not only the daily but also the weekly RSI is now effectively back where it was almost two years ago. After that, those who followed him benefited greatly as the next year saw virtually unbridled BTC price gains.
RSI refers to the how overbought or oversold an asset is at a certain price point, and the current low levels therefore lend weight to the idea that $35,000 does not accurately reflect the value of bitcoin.
The numbers are piling up for popular Twitter trader and analyst TechDev, with the weekly chart’s RSI just a hair’s breadth away from the classic reversal zones seen in Bitcoin’s earlier history.
electricity #BTC weekly RSI: 37
All bear bottoms: 29-35
March 2020 crash: 35
Closer to a bottom than a top imo. GN all. pic.twitter.com/MzyLNnJ6IT
– TechDev (@TechDev_52) January 23, 2022
“The monthly RSI is approaching levels that historically have been among the best buying opportunities in its entire history,” fellow analyst Matthew Hyland added next to your own card.
Bitcoin monthly RSI vs. BTC/USD annotated chart. Source: Matthew Hyland/Twitter
Therefore, on both higher and lower timeframes, the Bitcoin RSI suggests that the current price levels are unsustainable.
Miners are holding on… until now
Another phenomenon that could subtly flag $35,000 Bitcoin as a red herring is miner sales — or lack thereof.
At 50% below all-time highs, BTC/USD is now within leading estimates of the global production cost of mining a single bitcoin.
These range from around $34,000, as Cointelegraph shows reported, at $38,000, according to recent estimates, including that of crypto merchant bank Galaxy Digital.
However, looking at data on movements from mining pools and well-known miner wallets, it seems that miners are not in the mood to sell their BTC holdings despite presumably low or even negative profit margins.
A significant one accumulation trend So that started last year shows no signs of reversing – yet.
Miners don’t sell #Bitcoin
Do you know something we don’t know…? #BTC pic.twitter.com/csaE5y6hQJ
— Plan©️ (@TheRealPlanC) January 22, 2022
Nonetheless, not everyone is convinced that the status quo can weather the storm if spot price action continues to decline.
“The worst dumps #Bitcoin has ever had were due to miner capitulation (December 2018, March 2020) when BTC fell below production costs, miner capitulation threatens,” according to popular Twitter account Venturefounder repeated over the weekend.
“BTC was threatened by miner capitulation at $30,000 in June and is now back at $34,000.”
He added the latest incarnation of the Bitcoin production cost indicator from Charles Edwards, CEO of crypto investment firm Capriole.
Bitcoin Production Cost vs BTC/USD chart. Source: Venturefounder/ Twitter
The illiquid supply continues to grow
While concerns center on whether specific cohorts of Bitcoin market participants will sell and at what price, it’s worth zooming out, says one analyst.
Analyze Overall BTC supply over the weekend, Moskovski Capital CIO Lex Moskovski pointed to the ongoing trend of coins becoming increasingly inaccessible.
The spot price is moving sideways, with more and more supply being diverted to cold storage, accompanying data from Glassnode shows.
In January, despite the downward trend, the transformation of Bitcoin into illiquid actually accelerated, underlining the desire of investors to buy at the price level of the past few weeks. Selling, it seems, is the last thing on their mind.
“Panic if you feel like it, but bitcoin’s illiquid supply is relentlessly rising,” Moskovski predicts.
Bitcoin illiquid supply vs BTC/USD annotated chart. Source: Lex Moskovski/ Twitter
Earlier this month, Glassnode estimated that 76% of supply was already illiquid. In December, about 100,000 BTC became illiquid every month, additional findings claimed.
“The only thing that makes noise is the summer dent,” Moskovski said added on the supply crisis that followed the resettlement of miners last May.
Sentiment index a hair’s breadth away from historic lows
With all the downsides, it’s probably not surprising that Bitcoin market sentiment isn’t performing well.
Related: Top 5 Cryptocurrencies to Watch This Week: BTC, LUNA, ATOM, ACH*, FTM
According to the latest data from Crypto Fear and Greed Index, “extreme fear” getting worse in line with spot rate action.
Earlier this month Cointelegraph reported The index hit lows seen only a few times in history, and as the weekend returned to those levels, the doom felt by the average market player becomes all the more apparent.
Current levels of around 10/100 have historically proven to be excellent buy points based on sentiment alone, with Bitcoin settling there in both March 2020 and at the bottom of its 2018 bear market.
Crypto Fear & Greed Index (Screenshot). Source: Alternative.me
