The first half of 2022 is not the best for bitcoin investors. The rate sank by 69.2% relative to the historical maximum reached in November. And the second quarter is the worst in the history of digital gold.
Market conditions hit not only the assets of optimists, many of whom were waiting for Bitcoin at $100,000, but also the income of miners. At the current price, the legendary Antminer S9 began to operate at a loss, and the cash flow from mining decreased by 80%.
Now miners are selling most of the mined cryptocurrency, putting additional pressure on the price. Many analysts convincedthat capitulation of bitcoin miners is a good indicator of the market bottom.
Cryplogger analyzed the most relevant on-chain metrics and found out what to expect from the price of the first cryptocurrency in the short and medium term.
- Many indicators are giving signals that indicate a likely recovery of bitcoin. But downside potential remains to $10,300.
- A surge in the flow of funds to the exchanges against the backdrop of falling prices is a sign of capitulation of the miners.
- Analysis of historical data shows that the bottom of the cycle may still be ahead.
On June 18, Bitcoin failed the $20,000 level. This event alarmed many supporters of technical analysis – after all, quotes had never before fallen below the bottom of the previous market cycle.
The community wondered where to look for the next level of support. Arcane Research researchers compared the drawdowns of the first cryptocurrency in past market cycles and concluded that the downside potential remains until the $10,350 mark.
Many analysts drew attention to the massive sales of miners on the eve of the collapse. This is evidenced by a surge in the volume of cryptocurrency sent to exchanges from miners’ wallets.
Senior On-Chain Analyst at CryptoQuant Julio Moreno explains such dynamics by a sharp drop in the profitability of bitcoin mining. According to his observations, hashprice dropped to $0.09, which is in line with October 2020.
On an annualized basis, the figure fell by 60%. This, according to Moreno, is the fastest rate of decline since the “coronavirus” collapse of March 2020.
The increase in the complexity of bitcoin mining has exacerbated the situation of miners, increasing their costs.
Since the beginning of the year, the difficulty has increased by more than 50%. During the same period, the first cryptocurrency has fallen in price by about half.
“Against the backdrop of declining income and profits, miners have turned into bitcoin sellers,” the researcher emphasized.
According to Moreno, the growing volume of bitcoins sent by miners to exchanges is putting pressure on the market.
In June alone, miners sent 23,000 BTC to the trading floors, which is the highest monthly figure since May 2021.
“In just one day, some members of the Poolin pool sent 5,000 BTC, or about $110 million, to Binance. This operation may indicate that the income of some miners is below the break-even point. Therefore, they have to sell coins to cover expenses and service loans, ”Moreno wrote.
According to the expert, a sharp increase in the flow of funds to exchanges against the backdrop of falling prices is a sign of capitulation of miners, which usually precedes the market bottom.
What will happen to the price?
Based on the Difficulty Ribbon, the Difficulty Ribbon Compression indicator has been signaling a favorable period for buying Bitcoin since the end of March.
The “Green Zone” is a sign of tape compression, which means the capitulation of some miners. The market is dominated by players with the most productive equipment. They sell less, which means they open up opportunities for price growth.
Another instrument, the Hash Ribbons Indicator, has recently signaled the start of surrender (vertical yellow bar).
The dynamics of HODL waves indicates a decrease in the speculative activity of short-term investors, which is characteristic of an overheated market.
In the chart above, the red bars show the percentage of coins that have been in motion relatively recently – from 1 day to 90-180 days. Since the first quarter, there has been a decline in the supply of short-term investors.
The Puell Multiple indicator values reached the green range at the beginning of June, which means bitcoin is oversold.
This “barometer of market cycles” is the ratio of the daily volume of issued bitcoins in dollar terms to the same indicator, but already smoothed by a 365-day moving average.
A similar signal is shown by the MVRV Z-Score indicator, based on the ratio of market capitalization to realized capitalization.
The last time this on-chain instrument indicated oversold conditions (and therefore a favorable period for long-term purchases) was back in March 2020. Then bitcoin fell below $5,000.
Based on the data from the NVT Price indicator, the fundamentally justified price of digital gold is in the region of $44,000. In other words, Bitcoin is highly undervalued.
What does technical analysis say?
The material is published for informational purposes only and does not constitute an investment recommendation. Cryplogger is not responsible for the investment decisions of readers.
The chart below shows that the price is “trying” to consolidate above the $20,000 level and above the 200-week moving average. The RSI indicator has never reached such a deep oversold.
The situation for Ethereum is approximately the same. Thus, the entire market seems to be in limbo. Support looks fragile, but there is still a high probability of an upward correction or even a full-fledged trend reversal.
The price of bitcoin is well below the 200-day moving average (MA 200) – a kind of border between bull and bear markets.
Based on the MA 200, the Mayer Multiple indicator is at 0.56, above which it has been 97% of the time.
The average value of the metric since the introduction of Bitcoin is 1.4.
Favorable for buying are the indicator marks below 2.4.
Analyst Matt Rowe compared the dynamics of the Mayer Multiple with the historical profitability of investing in bitcoin. He came to the conclusion that buying cryptocurrencies from current levels can bring “X” to patient investors.
According to Rowe, if you buy bitcoin for $1,000 from the current metric and hold the asset for 60 days, the amount received “at the exit” will be in the range of $1,000 (break-even point) to $2,300.
Other things being equal, holding an asset for 180 days will historically give from 1.9x-50x. That is, the cost of investments for $1,000 will be in the range of $1,800-$50,000.
A similar investment in a year, according to Rowe, will turn into an amount between $50,000 and $250,000.
The researcher emphasized that the calculations are entirely based on historical returns, which does not guarantee equally impressive results in the future.
“A macroeconomic recession has come into play, this time it could be different,” said Matt Rowe.
The current situation is not easy. Unlike previous market cycles, bitcoin is much more sensitive to macroeconomic factors: rate changes Fedthe state of the stock market and geopolitical tensions.
An important element of the picture is large centralized players like Celsius and Three Arrows Capital (3AC), which began to have serious problems with the collapse of Terra. Broker Voyager Digital, which is financially linked to 3AC, also encountered difficulties.
The problems of the above companies put pressure on the market. And the stabilization of the financial position of these firms largely depends on the dynamics of the recovery of the latter.
On-chain metrics indicate oversold prices and predict a reversal in the price of bitcoin and many crypto assets that correlate with it. Technical indicators also give moderately optimistic signals. There is no doubt about the beginning of the capitulation of the miners, usually preceding the consolidation and trend reversal.
However, market participants should consider the situation comprehensively, taking into account various factors. It is worth investing carefully, for example, using the time-tested dollar cost averaging method. This will reduce the risk of volatility, especially if, contrary to the indicators, the price of bitcoin sets off in search of another bottom.
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