In today’s article, BeInCrypto looks at 6 selected on-chain indicators whose charts suggest that Bitcoin is very close to reaching a bottom. These were highlighted in a tweet yesterday by Will Clemente – a well-known on-chain analyst – who suggests that “it’s a great time to DCA heavily.”
Will Clemente is as young (20 years old) as he is popular (630,000 followers on Twitter) a next-generation on-chain analyst. He hosts the Blockware Intelligence Podcast and writes a weekly newsletter on on-chain analytics, mining, and digital assets.
DCA and the multi-generational bottom
His tweet yesterday initiated a discussion on the argument that a bottom in the price of Bitcoin and the entire cryptocurrency market is imminent. Clemente makes this part of the narrative he promotes that the last few months represent the best opportunity for an investment strategy called “dollar cost averaging” (DCA).
DCA involves an investor dividing the total amount to be invested into periodic purchases of assets of interest. In this way, he tries to reduce the impact of volatility on the total purchase. The purchases are made regardless of the price of the asset and at regular intervals.
Will Clemente then added a strong entry that he believes Bitcoin is very close to an important market low today:
“Now I believe Bitcoin is very close to a multi-generational galactical pico-bottom where I plan to allocate all of my dry powder for my grandchildren’s grandchildren.”
One has to admit that for a 20-year-old, this is a very powerful, even visionary statement. Of course, the analyst does not leave it without proper arguments to support his strong conviction.
Will Clemente: 6 arguments
So let’s take a look at the 6 on-chain indicators charts he presented. Indeed, they suggest that Bitcoin is today near levels characteristic of the absolute lows of previous bear markets. Moreover, they are in line with many on-chain analyses by the BeInCrypto team.
The first chart that Will Clemente presents is the so-called Top/Bottom Models. It contains charts of two indicators: Realized Price and Delta Price. The former (light green line) is the ratio between the realized market capitalization of Bitcoin and its running supply. It currently sits just above $24,000.
On the other hand, the second indicator, Delta Price (dark green line), has served well in the past to determine the absolute lows of bear markets in 2011, 2015, and 2018. This indicator is based on the so-called Bitcoin Delta Capitalization, which is the difference between the realized cap and the average cap – the life-to-date moving average of the market cap.
In the chart, we can see that Delta Price is today well below the December 2017 historical all-time high (ATH) of $20,000. Somewhat contrary to Clemente’s arguments, if Bitcoin were to dive below this level, the current price is certainly not close to a bottom. On the other hand, if the bottom is to be set by Realized Price this time, the $24,000 level could serve as ultimate support.
In his second argument, Will Clemente uses the MVRV Z-Score. It is used to assess when Bitcoin is overvalued/undervalued relative to its “fair value”. When the market value is significantly higher than the realized value, this historically indicates a market top (red zone), while the opposite situation indicates a market bottom (green zone). Technically, the MVRV Z-Score is defined as the ratio between the difference between market cap and realized cap, and the standard deviation of all historical market cap data.
In the chart, we see an ongoing decline in the indicator toward the green zone, which, however, has not yet been reached. Indeed, in the past, staying in it and sometimes even falling below (2011 and 2015) has been a marker of an absolute bottom for the BTC price. Therefore, it seems that despite the low value of the indicator, there is still room for a continuation of the downward movement.
Entity-Adjusted Dormancy Flow
Another indicator is the Entity-Adjusted Dormancy Flow, which BeInCrypto recently wrote about. This indicator is an improved version of the Average Coin Dormancy, which indicates the average number of days destroyed per coin transacted. Its improved version rejects transactions between addresses of the same entity, giving a better market signal and reflecting actual market activity.
According to Clemente, the indicator “has been in the “buy” zone for the last few months but is now approaching levels that previously set generational bottoms.” In fact, looking at the chart, we see that the indicator is already firmly below the bottom of the COVID-19 crash in March 2020. Moreover, it is close to reaching the December 2018 area when BTC fell to the $3150 level.
Next, Clemente turns his attention to Reserve Risk. This indicator is used to gauge the confidence of long-term holders relative to the price of Bitcoin at any given time. When confidence is high and the price is low, Reserve Risk reaches low values. When confidence is low and the price is high, the indicator gives high readings.
Currently, the chart has been in the green low-risk zone for several months. However, unlike Entity-Adjusted Dormancy Flow, the March 2020 level has not yet been reached here. Clemente says the low Reserve Risk level is “illustrating holder confidence relative to price.”
The fifth indicator presented by the analyst is the Mayer Multiple. This is an oscillator that is calculated based on the ratio of the BTC price to the 200-day moving average (200D MA). Bitcoin’s absolute lows were usually reached when this indicator fell sharply below 1. For example, the 2018 low brought the Mayer Multiple to a value of 0.53.
Currently, the indicator reaches a value of 0.63, according to data from Woobull Charts. Here again, Clemente emphasizes that this is “the buy zone, almost at historical lows.”
200-Week Moving Average
The last indicator that Will Clemente refers to is the 200-week moving average (200W MA). Of course, this indicator does not come from on-chain analysis, but is a traditional technical analysis indicator. In the long-term BTC chart, the average has served as the ultimate support for any bear market. However, sometimes there have been long wicks or even weekly closes below it.
Currently, the 200W MA is located at the $21,832 level. Reaching this valuation would involve Bitcoin falling another 25% from its current value. It is worth noting that this level is just below the $24,000 Realized Price chart presented in the first argument.
The above 6 arguments made by Will Clemente may indeed suggest that a bottom in the Bitcoin price is close to being reached. However, in each of the charts above, we can see that the historical lows have not yet been reached. Several indicators even suggest the possibility of a drop to or below $20,000, i.e. testing the ATH level from the previous cycle. Such a situation has never happened before in Bitcoin’s history.
Will Clemente summarizes his arguments this way:
“Based on the aggregation of these metrics and price levels; bottom is most likely in low-mid $20Ks, aligning with the theory of frontrunning previous ATH.”
He then adds, in line with his DCA strategy, advice for long-term investors: “Question to ask yourself is in 2 years will buying at 29K versus MAYBE sniping the bottom matter? Prob not, but I will try.”
For BeInCrypto’s latest Bitcoin (BTC) analysis, click here.
All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.
Low inflation or bust: Analysts say the Fed has no choice but to continue raising rates
As economic conditions continue to worsen, financial experts worldwide are increasingly placing the blame at the feet of the United States Federal Reserve after the central bank was slow to respond to rising inflation early on.
Financial markets are currently experiencing their worst stretch of losses in recent history, and it doesn’t appear that there is any relief in sight. May 24 saw the tech-heavy Nasdaq fall another 2%, while Snap, a popular social media company, shed 43.1% of its market cap in trading on May 23.
— Crypto Phoenix (@CryptoPheonix1) May 24, 2022
Much of the recent turmoil again comes back to the Fed, which has embarked on a mission to raise interest rates in an attempt to get inflation under control, financial markets be damned.
Here’s what several analysts are saying about how this process could play out and what it means for the price of Bitcoin (BTC) moving forward.
Will the Fed tighten until the markets break?
Unfortunately for investors looking for short-term relief, economist Alex Krüger thinks that “The Fed will not stop tightening unless markets break (far from that) or inflation drops considerably and for *many* months.”
One of the main issues affecting the psyche of traders is the fact that the Fed has yet to outline what inflation would need to look like for them to take their foot off the rate-hike gas pedal. Instead, it simply reiterates its goal “’to see clear and convincing evidence inflation is coming down’ towards its 2% target.”
According to Krüger, the Fed will “need to see Y/Y [year-over-year] inflation drop 0.25%–0.33% on average every month until September” to meet its goal of bringing down inflation to the 4.3%–3.7% range by the end of the year.
Should the Fed fail to meet its PCE inflation target by September, Krüger warned about the possibility that the Fed could initiate “more hikes *than what’s priced in*” and also begin exploring the sale of mortgage-backed securities as part of a quantitative tightening campaign.
“Then markets would start shifting to a new equilibrium and dump hard.”
A setup for double-digit sustained inflation
The Fed’s responsibility for the current market conditions was also touched on by billionaire investor and hedge fund manager Bill Ackman, who suggested that “The only way to stop today’s raging inflation is with aggressive monetary tightening or with a collapse in the economy.”
In Ackman’s opinion, the Fed’s slow response to inflation has significantly damaged its reputation, while its current policy and guidance “are setting us up for double-digit sustained inflation that can only be forestalled by a market collapse or a massive increase in rates.”
Due to these factors, demand for exposure to stocks has been muted in 2022 — a fact evidenced by the recent decline in stock prices, especially in the tech sector. For example, the tech-heavy Nasdaq index is now down 26% on the year.
With the cryptocurrency sector being highly tech-focused, it’s not surprising that weakness in the tech sector has translated to weakness in the crypto market, a trend that could persist until there is some form of resolution to high inflation.
How could Bitcoin fare going into 2023?
According to Krüger, the “base case scenario for upcoming price trajectory is a summer range that starts with a rally followed by a drop back to the lows.”
“For $BTC, that rally would take price to the start of the Luna dump (34k to 35.5k).”
Crypto trader and pseudonymous Twitter user Rekt Capital offered further insight into the price levels to keep an eye on for a good entry point moving forward, posting the following chart showing Bitcoin relative to its 200-day moving average.
Rekt Capital said:
“Historically, #BTC tends to bottom at or below the 200-MA (orange). The 200-MA thus tends to offer opportunities with outsized ROI for $BTC investors (green). […] Should BTC indeed reach the 200-MA support… It would be wise to pay attention .”
The overall cryptocurrency market capitalization now stands at $1.258 trillion, and Bitcoin’s dominance rate is 44.5%.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
ECB: One in ten households in eurozone population centers now own cryptocurrency
The survey took place in the EU’s major economic areas such as France, Germany, Italy, Spain, Belgium, and the Netherlands.
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On Tuesday, the European Central Bank, or ECB, published the results of a new survey conducted in six eurozone areas; the Netherlands, Spain, Italy, Belgium, France, and Germany. Together, approximately 10% of respondents from the surveyed countries said they own cryptocurrencies. Out of this group, only 6% of respondents said they own digital assets worth more than 30,000 euros. Meanwhile, 37% of respondents said they owned up to 999 euros in crypto.
Across all of the countries surveyed, investors in the fifth income quintile (or the wealthiest 20% of the population) consistently had the highest proportion of cryptocurrency ownership relative to other income groups. The Consumer Expectation Survey asked adults aged 18 to 70 if they or anyone in their household owned financial assets in various categories, such as crypto-assets.
The survey was included in a new report published by the ECB the same day regarding the growing adoption of crypto assets despite their risk factors. As cited by the ECB, 56% of respondents in a recent Fidelity survey said they had some exposure to crypto-assets, up from 45% in 2020. Increased availability of crypto-based derivatives and securities on regulated exchanges, such as futures, exchange-traded notes, exchange-traded funds, and OTC-traded trusts, have contributed to the momentum.
In addition, increased regulation has been taken as a sign that public authorities endorse crypto. As an example, the ECB cited Germany allowing institutional funds to invest up to 20% of their holdings in crypto. However, the ECB highlighted at the end of the report that if current trends in digital asset adoption continue, then they will eventually pose a threat to financial stability.
Weak stocks and declining DeFi use continue to weigh on Ethereum price
Ether’s (ETH) 12-hour closing price has been respecting a tight $1,910 to $2,150 range for twelve days, but oddly enough, these 13% oscillations have been enough to liquidate an aggregate of $495 million in futures contracts since May 13, according to data from Coinglass.
The worsening market conditions were also reflected in digital asset investment products. According to the latest edition of CoinShare’s weekly Digital Asset Fund Flows report, crypto funds and investment products saw a $141 million outflow during the week ending on May 20. In this instance, Bitcoin (BTC) was the investors’ focus after experiencing a $154 weekly net redemption.
Russian regulation and crumbling U.S. tech stocks escalate the situation
Regulatory uncertainty weighed on investor sentiment after an updated version of the Russian mining law proposal came to light on May 20. The document in the lower chamber of the Russian parliament no longer contained the obligation for a crypto mining operators registry nor the one-year tax amnesty. As cited by local media, the legal department of the Duma stated that these measures could “possibly incur costs on the federal budget.”
Additional pressure on Ether price came from the Nasdaq Composite Index’s 2.5% downturn on May 24. In addition, the heavily-tech stock-driven indicator was pressured after social media platform Snap (SNAP) tumbled 40%, citing rising inflation, supply chain constraints and labor disruptions. Consequently, Meta Platforms (FB) shares fell by 10%.
On-chain data and derivatives are in favor of bears
The number of active addresses on the largest Ethereum network’s decentralized applications (DApps) has dropped by 27% from the previous week.
To understand how professional traders, whales and market makers are positioned, let’s look at Ether’s futures market data.
Quarterly futures are used by whales and arbitrage desks due, primarily, to their lack of a fluctuating funding rate. These fixed-month contracts usually trade at a slight premium to spot markets, indicating that sellers request more money to withhold settlement longer.
These futures should trade at a 5% to 12% annualized premium in healthy markets. This situation is technically defined as “contango” and is not exclusive to crypto markets.
Ether’s futures contracts premium went below the 5% neutral-market threshold on April 6. There’s an evident lack of conviction from leverage buyers because the current 3% basis indicator remains depressed.
Ether might have gained 2% after testing the $1,910 channel resistance on May 24, but on-chain data shows a lack of user growth, while derivatives data point toward bearish sentiment.
Until there’s some morale improvement that boosts the use of decentralized applications and the Ether futures premium regains the 5% neutral level, the odds of the price breaking above the $2,150 resistance seems low.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
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