Last Updated: 8 July 2022
Bitcoin has been in a downward trend since December 2021, and we can now say that those declines marked the beginning of a severe bear market. In a short period of time, we lost more than 70 percent of the all-time high of $69,000, but now there seems to be some life in the brew again.
Two on-chain indicators that have predicted many bottoms in the past are currently jumping to green, predicting a price explosion for bitcoin.
Bitcoin is oversold
Several on-chain indicators have jumped to the green, but today we will discuss two that we have always been able to count on, in the past: the MVRV Z-score and the Bitcoin Investor Tool.
The MVRV Z-score uses a combination of bitcoin’s market value, realized price and its z-score. The realized price is the average price at which all bitcoin last exchanged addresses. For years the MVRV Z-score has proven to be a good tool to predict bottoms and tops.
In fact, the MVRV Z-score measures the extent to which bitcoin is over- or undervalued compared to its “actual” value. This is based on the average price at which each bitcoin last exchanged addresses. Currently, we are in the green zone in the chart, which has often proven to be a good buying opportunity in the past.
— The Modern Investor (@ModernInvest) March 20, 2021
A look into Bitcoin’s Investor Tool provides similar insight as to when buying or selling bitcoin can result in above average returns.
The green line in the chart represents a period when the bitcoin price is at a level that historically has been classified as low and vice versa. Of course, these types of indicators do not provide certainty, and it is not a good idea to base your entire strategy on the MVRV Z-score and the Bitcoin Investor Tool.
Impending recession helping bitcoin?
Now most on-chain indicators have been in the green for some time, but what makes it different this time is that the US economy is starting to falter. The Federal Reserve has tried to fight off raging inflation with higher interest rates in recent months and is now being presented with the bill.
The new US unemployment figures do not look good, consumer confidence is at its lowest point in decades, and industry is also starting to falter. These are all signs that the Federal Reserve does not have much room to raise interest rates further.
Bond markets are already pricing in the first Federal Reserve rate cuts before the start of 2023. All of these indicators suggest that the US central bank’s stricter policy may soon be coming to an end, giving hope to bitcoin and other financial assets.