Bitcoin’s price has remained below the five-year high reached in 2005. It has experienced a shocking drop in value, which is why the market fears for its continued decline.
A number of BTC-based indicators on the blockchain could indicate how far we’re from the bottom. Let’s take a look.
A Six-Part Series of On-Chain Indicators Scream: Bitcoin Bottom is In
Because the bottom can only be seen in retrospect, bear markets in Bitcoin and other currencies are brutal. Investors are afraid that the markets will collapse forever and that this fear can prevent them from purchasing at their long-term lowest levels.
The technical analysis tool can be used in order to identify oversold conditions and other indicators that are supportive of the notion that there is a bottom. A subset of quantitative foundation analysis, which focuses only on the on-chain signals, is unique to cryptocurrency. Multiple such tools may be pointing to a bottom.
We now have the Puell Multiple. Calculating the Puell Multiple involves dividing bitcoin’s daily issuance (in USD) by the daily moving average of daily issuing value for 365 days.
Puell Multiple | Source: glassnode
Bitcoin Reserve Risk currently has the best risk/reward ratio. The price/HODL Bank is the definition of Reserve Risk. It’s used to evaluate the long-term confidence of holders relative to any current native coin price.
Bitcoin Reserve Risk | Source: glassnode
We have MVRVZ-Score in this chart. The Source: glassnodeis used to assess when Bitcoin is over/undervalued relative to its “fair value”.
MVRV Z-Score | Source: glassnode
These are the biggest ever Net Realized Losses. Net Realized Profit/Loss is the net profit or loss of all moved coins, and is defined by the difference of Realized Profit – Realized Loss.
Net Realized Profit/Loss | Source: glassnode
The Realized Profits-to-Value Ratio is also in the bottom zone. The Realizedprofits-to–Value Ratio refers to the ratio between Realized Profits (or Realized Cap) and Actual Profits. This ratio compares the profit-taking on the market to its overall cost base, dollar-todollar.
Realized Profits-to-Value Ratio | Source: glassnode
The net unrealized profit/loss is the final sign of capitulation. BTC did not reach a point of greed and euphoria during the market peak. As Bitcoin prices change over time, the dataset becomes less volatile. The difference between relative unrealized profit and relative unrealized loss is called net realized profit/loss.
Net Unrealized Profit/Loss | Source: glassnode
Although none of these indicators confirm that Bitcoin’s price action is at its bottom, they are all in an area where bear markets have ended historically. If the cryptocurrency with the largest market cap falls here, this would mark the lowest possible drawdown in Bitcoin’s history.
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Featured image taken from iStockPhoto. Charts taken from TradingView.com