6 Signs to Know if Bitcoin Has Already Hit the Bottom, According to Experts

Bitcoin (BTC) peaked at nearly $69,000 in November 2021, leading to the latest celebration of the 2020-2021 bull market. Since then, the crypto price has plummeted, with no bottom in sight. But is there a way to determine what the floor is in this strong sell-off scenario?

Many traders and investors are attracted by the search for the exact moment of the floor (mark-to-market). This is because, as such a level would mark the lowest price for the crypto asset in a given cycle, any increase would imply a positive net result.

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But trying to time the lowest price can be a futile task, given that “the bottom is usually only obvious in hindsight, as is the top,” pseudonymous crypto trader and educator Cred told CoinDesk. In the year, Bitcoin accumulates a drop of almost 60%.

CoinDesk asked experienced traders and investors for signals on what the bottom might be for the Bitcoin price, whether the bottom matters, and what alternatives investors and retail traders might look for.

macro conditions

Bitcoin price correlation with US equities is at an all-time high. The world’s largest cryptocurrency trades pretty much like a major technology stock listed on Nasdaq, and so analyzing Bitcoin’s price movement must take into account the macroeconomic conditions that underpin the real-world economy.

“A big sign of Bitcoin bottoming, in my opinion, is when we see data showing us that inflation is convincingly sloping down,” Marcus Sotiriou, an analyst at digital asset exchange GlobalBlock, told CoinDesk. “I would be cautious until inflation starts to drop as we learn that the Federal Reserve is king when it comes to risky assets like crypto, and the pain of monetary tightening could still drag on for several months.”

Considering that much of Bitcoin’s price movement is related to macro conditions, it makes more sense to look at what the worst case scenario would be. But timing this is not an easy task either.

“I don’t think we can be convinced of a floor on the macro scenario until the Federal Reserve eases the rate hikes,” Sotiriou said. The market will only gain confidence if the US central bank changes its position. “We can see an example of this relationship when Bitcoin made a significant move off the lows,” he said.

Look for technical signals

There are some common features in the lowest Bitcoin prices. “The lowest price in 2015 came after [o BTC] be held within a tight price range for a year, and the 2019 floor came after a three-month period of low volatility,” Josh Olszewicz, head of research at cryptocurrency fund manager Valkyrie Investments, told CoinDesk.

“Floors typically take time to form because the volume of buyers and sellers eventually reaches an equilibrium until demand outstrips supply,” Olszewicz said. In technical terms, these extended periods are called “accumulation”.

Read more:
• Bitcoin is discounted and offers opportunity for accumulation, on-chain indicators suggest

Cryptocurrency markets are often volatile with extreme price movements. But sometimes they get dull and trade sideways: you wake up, check the price and it’s only a 0.1% change. Olszewicz said lower Bitcoin prices historically followed “prolonged periods of low volatility and uninteresting price movements.”

Accumulation signals include “several ranges on the 200-week moving average, as well as holding below the realized Bitcoin price, or aggregated average price of all coins moved on-chain.” [da blockchain],” explained Olszewicz.

“Rather than trying to time what the lowest value will be, savvy investors often look for these technical signals in previous bear markets, and begin calculating the average dollar cost when similar conditions happen.”

Think about price ranges

According to experts, instead of thinking of the floor as a single value, it might be more useful to think in terms of price ranges.

“Many traders try to time exact bottoms or tops, and often fail to do so,” pseudonymous trader ChimpZoo told CoinDesk. “Instead, they should look for periods of overvaluation and undervaluation and trade accordingly.”

Discount periods, for example, are historically marked by large Bitcoin sales, such as the collapse seen at the start of the Covid-19 pandemic or in November 2018. “Whether you bought at $3,200 or $3,800 in 2018, or at $6,200 in 2020 made no difference,” he said.

Already in the mid-2022 dips, cryptocurrency companies and lenders that were overleveraged had to give up positions. They claimed that prices were at “key discount levels” and that “when we get out of that range in the next week or three months, hard to predict, these low prices will be seen as a gift in the future.”

Beware of the bottom of the well

It is necessary to pay attention to the floor and not think that the lowest landing will act as a springboard. Once the market hits rock bottom, it doesn’t bounce right away; it may take a while for a new uptrend to start.

“Even if prices fall, the market could continue to give way if it is followed by a period of low volatility, illiquidity and so on,” Cred said. He describes the floor as “where the pain stops” and the new uptrend as “where the wealth is made”. There can, however, be a long time lag between the two, he points out.

long term focus

In the opinion of VKTR, a pseudonymous trader and main contributor to decentralized exchange IDEX, looking for the start of a long-term rally is more important than looking for the lowest price.

“Of course, you can be a little late, but you won’t take the risk of having bought a falling asset that has dropped another 50% after the purchase or else, which is at the same price level that you bought five months ago.”

Analyze market sentiment

The sharp drop in the markets in mid-2022 was marked by a series of unpleasant events, such as the giant collapse of the TerraUSD algorithmic stablecoin (UST) and the Terra token (LUNA), as well as the failure of several cryptocurrency companies. For the floor to form, time must first cure the market’s feeling of anxiety.

“The fund is as much a product of time as it is price, in most cases,” Cred said. “Bad memories must fade from public consciousness, reputational risk must diminish, enthusiasm from survivors, builders and other titleholders must return, and cynicism must subside to give way to optimism.” And that might take a while.

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