Bitcoin price broke out this week, but has the trend changed?
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Time to go long?
This week, Bitcoin’s (BTC) price has soared, rising to $21,000 on October 26. This led to a handful of traders proclaiming that the bottom may be in or that BTC is entering the next phase of a technical structure like Wyckoff , a range break or some kind of support resistance flip.
Before we get all bullish and open 10x longs, let’s call back to an earlier analysis to see if anything in Bitcoin’s market structure has changed and if the recent wave of bullish momentum indicates a broader trend change.
When the last update was published on September 30, Bitcoin was around $19,600, which is still within the limits of the last 136 days of price action. At that point, I had identified bullish divergences on the weekly relative strength index (RSI) and moving average confluence divergence (MACD). There were also a handful of potential “bottom” signals coming from several indicators on the chain, which were at multi-year lows.
Let’s take a look at how things look now.
Bollinger Bands are tight
Bollinger Bands on the daily time frame are still tight and this week’s rise to $21,000 was the expansion or rise in volatility that most traders have been expecting. At par for the course, after breaking out from the upper arm, price has retraced to test the midline/midband (20MA) as support.
Despite the strength of the move, the price remains capped below the 200-MA (black line) and it is currently unclear whether the 20-MA will now serve as support for Bitcoin’s price.
After returning a near-all-time low of 25.7, the weekly RSI continues to trend upwards and the bullish divergence identified in the previous analysis continues to play out. A similar trend is also held by BTC’s weekly MACD.
In the same chart, we can see that the last weekly candle is on its way to making a weekly higher high. If the candle closes above the highest level for the previous five weeks and the price continues in the coming weeks with a daily or weekly close above $22,800, this could be the basis for a trend reversal.
On the daily time frame, BTC’s Guppy multiple moving average indicator (GMMA or Super Guppy) is eyebrow-raising. There is compression of the short-term moving averages and they are converging with the longer-term moving averages, which typically indicates an impending directional move or, in some cases, a macro trend reversal underway.
In recent weeks, Bitcoin’s “record low volatility” has been the talk of the town, and when using Bollinger Bands, GMMA and BVOL, the tightening price range suggests expansion, but which direction remains a mystery.
Bitcoin has traded in the $18,600-$24,500 range for 36 days, and from a technical analysis perspective, the price remains near the middle of this range. The move to $21,000 did not set a significant daily higher high or escape the current range, which is essentially a sideways cut.
The price is holding above the 20-day moving average for now, but we have yet to see the 20-MA cross above the 50-MA, and the majority of the October 26 rally has returned to the low $20,000 level.
A more compelling development would involve Bitcoin breaking out of the current range block to test the 200-MA at $24,800 and eventually making an attempt to reverse the moving average to support.
A further extension to the $29,000-$35,000 range will inspire confidence from bulls looking for a clearer sign of a trend reversal. Until that happens, the current price action is simply more consolidation anchored by resistance extending all the way to $24,800.
Related: Why is the crypto market up today?
Bitcoin on-chain data says to accumulate
Similar to BTC’s spot price, the MVRV Z-Score has also bounced around the -0.194 to -0.023 zone over the past three months. The on-chain calculation reflects a ratio between BTC’s market value and realized capitalization (the amount people paid for BTC compared to its value today).
In short, if Bitcoin’s market cap is measurably higher than its realized value, the metric enters the red zone, indicating a possible market top. When the metric enters the green zone, it signals that Bitcoin’s current value is below the realized price and that the market may be nearing a bottom.
According to the MVRV Z-Score chart, compared to Bitcoin’s price, the current -0.06 MVRV Z-Score is in the same range as previous multi-year lows and cycle bottoms.
Reserve risk
Bitcoin’s Reserve Risk calculation shows how “safe” investors are compared to the market price of BTC.
When investor confidence is high but BTC’s price is low, the risk of reward or Bitcoin attractiveness versus the risk of buying and holding BTC enters the green zone.
In times when investor confidence is low, but the price is high, Reserve Risk moves into the red area. Historical data suggests that building a Bitcoin position when Reserve Risk enters the green zone has been a good time to establish a position.
For now, we can see that over the past six months, the calculation has found what investors can describe as a bottom. At the time of writing, the reserve risk is rising towards 0.0009, and typically crossing the 0.001 threshold into the green zone has marked the start of an improvement.
Look forward to
Several data points seem to suggest that Bitcoin’s price is undervalued and still bottoming out, but none confirm that the actual market bottom is in.
This week, and in previous months, several Bitcoin mining companies have publicly announced the need to restructure debt, the possibility of missed debt payments, and some have even hinted at potential bankruptcy.
Most listed miners have sold most of their mined BTC since June, and recent headlines from Compute North and Core Scientific suggest that Bitcoin’s price remains at risk due to solvency issues among industrial miners.
Data from Glassnode shows the combined size of miner balances hovering around 78,400 BTC that are “held by miners we have tagged (accounting for 96% of the current hashrate).”
According to Glassnode, in the event of “revenue stress”, it is possible that miners will be forced to liquidate tranches of these reserves in the open market, and the knock-on effect on Bitcoin’s price could be the next catalyst for a sell-off. off to new annual lows.
This newsletter was written by Big Smokey, the author of The Humble Pontificator Substack and resident newsletter writer at Cointelegraph. Every Friday, Big Smokey will write market insights, trending how-tos, analysis and early research on potential new trends within the crypto market.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade involves risk, you should do your own research when making a decision.
