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Bitcoin (BTC-USD) and the overall cryptocurrency market have been in a steep downtrend since mid-November 21. The bubble appears to have finally burst, and Bitcoin technical analysis points to potential for long-term consolidation. In this article I will cover:
- Bitcoin on-chain analysis
- The current price structures of Bitcoin and Ethereum (ETH-USD).
- Potential price movements to be expected over the coming days, weeks and months.
The mood in the stock and crypto markets is currently very pessimistic. Notably, the CBOE stock put/call ratio recently rose to 0.82, the highest since the pandemic lockdown and March 2020 sell-off.
CBOE Stock Put/Call Ratio
and charts
Bitcoin also recently hit its lowest RSI since the March 2020 sell-off.
At the time of writing, Bitcoin has seen a crash of around 15% over the past 3 days. After such a severe downturn, the trend is now towards a near-term recovery. If that recovery occurs, expect it to materialize at the close of the final FOMC meeting and Federal Chairman Jerome Powell’s press briefing on Wednesday (1/26).
Bitcoin
This crash proved once again why Bitcoin is the king of cryptocurrencies. While many altcoins have been completely ruined in recent days, Bitcoin’s chart appears comparatively calm, cool, and collected. To put it simply, bitcoin has been here before. Throughout its lifetime, Bitcoin has survived numerous crashes of over 50% and even over 80%. In fact, Bitcoin experiences about a 50 percent correction per year on average.
Bitcoin supply and demand
Jurrien Timmer
Importantly, Bitcoin’s on-chain indicators appear relatively normal and healthy. Recently, Bitcoin’s overall hashrate (the metric used to calculate the total computing power used to secure the Bitcoin network) surpassed its all-time high. This means that although Bitcoin’s price has fallen recently, as a monetary network, Bitcoin is now healthier than ever.
Bitcoin hash rate
CoinWars
Side note – Bitcoin’s proof-of-work mining scheme is a enormously overlooked and undervalued property of the bitcoin network. Essentially, there is an economic incentive for Bitcoin’s hashrate to increase indefinitely along with global technological advances. Additionally, alongside advancing technology, there is just as great an economic incentive for companies to use excess energy to run bitcoin mining farms. Going forward, proof-of-work mining is likely to play a massive role in bitcoin’s process of becoming a global reserve currency.
the crash
In terms of recently realized losses (investors are selling at a loss overall), Bitcoin’s current crash is significantly less damaging than its previous crash (which occurred on May 21). Over the past year, Bitcoin’s total realized losses have exceeded $1 billion and even exceeded $2 billion in a matter of days. Alternatively, realized loss during Bitcoin’s current crash just surpassed a comparatively smaller $1 billion.
BTC Realized Loss
glass node
Currently, about 70% of Bitcoin holders are profitable. While this 70% level previously served as a bottom indicator for Bitcoin when it crashed on May 21, it remains to be seen if this will mean Bitcoin bottoms again. To me, bitcoin’s supply percentage of profit looks like it’s going down.
BTC percent offer in profit
glass node
It seems likely that 2022 will be a low-risk and non-speculative year. There is too much fear in the crypto market right now and a lengthy correction/consolidation process needs to take place. According to Bitcoin’s logarithmic growth curves, a price of $30,000/BTC on October 22 could become Bitcoin’s new macro low.
Bitcoin 2022 prediction
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However, with so many investors quickly turning bearish after Bitcoin’s crash, there is a notable short-term reason for a bullish recovery rally in the coming days. It is possible that the market is too bearish at the moment, which could trigger a short squeeze. If this rally happens, expect a volatile move at the close of Wednesday’s FOMC session where $40,000/BTC could act as critical price support or resistance.
Longer term, Bitcoin looks set to trade between 30,000 and 50,000 until around October.
ether
Investor sentiment is currently much more negative for Ethereum than for Bitcoin. This is largely due to recent comments from Vitalik Buterin (the creator of Ethereum) on Ethereum’s progress towards its 2.0 upgrade. In a Bankless podcast, Vitalik stated that Ethereum’s overall progress toward its 2.0 upgrade is only “50% complete.”
Vitalik’s comments, along with other recent technical releases and coupled with ETH’s bearish TA, have combined to cause many crypto analysts to turn their backs on Ethereum. For now, it doesn’t seem likely that the Ethereum network will scale as effectively or as quickly as investors previously thought. This has created immense selling pressure on ETH as investors have recently rushed to lock in their gains for 2021.
Ethereum TA
author
Regarding TA, Ethereum has been in free fall since $3.8K. ETH is currently attempting to hold $2.4K as support. If this price fails to hold, another drop to $1.8K is on the table.
Total crypto market cap
Finally, the total cryptocurrency market cap maintains a similar structure to Ethereum. Support for the total crypto market cap is currently between $1.5 trillion and $1.6 trillion. If this support fails, then there is still scope for the crypto market to drop as low as $1.15 trillion (the previous low) before investors panic.
total crypto market cap
author
Importantly, a further move lower in total crypto market cap to $1.15 trillion would remove approximately $500 billion from the cryptocurrency market. Due to the possibility of this severe downside, I’m currently staying away from altcoins, at least until Token Metrics’ AI strategy tells me otherwise.
BTC – bottom not there yet
TM Bitcoin trading strategy
token metrics
Token Metrics’ low-frequency trading strategy flashed bearish on Nov. 22, 21 as Bitcoin traded at $56,000. Since then, the strategy has not yet given a buy signal. Usually, these low-frequency buy signals appear after the price has established a sufficient bottom. Therefore, according to this strategy, Bitcoin has yet to find its bottom price.
Conclusion
There is a lot of momentum at play in the current crypto economy, and each working to make the crypto market particularly vulnerable to volatility. Some of the most important of these dynamics include:
- regulatory uncertainty
- offshore leverage
- Cross Collateral (especially in DeFi)
Going forward, the crypto market is looking bearish for a large chunk of altcoins (particularly speculative games, DeFi governance tokens, metaverse tokens, and coins with old histories). Within these sectors there is room for $500 billion in value.
Bitcoin’s chart, on the other hand, appears relatively healthy and sustainable. Most notably, it will be interesting to see if $28,000 acts as Bitcoin’s macro bottom again.
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