Is the bottom in for Bitcoin? Let's examine 5 crucial indicators to determine if the bear market is waving goodbye or plotting its next move!
The cryptocurrency market has been in a sharp decline since November 2021 — after reaching an all-time high global market capitalization of almost $3 trillion.
Historically, the average cryptocurrency bear market has lasted ~300 days following the previous all-time high. Given that it has now been more than one year since Bitcoin (and many other cryptocurrencies) reached their highest-ever values, some believe that the bottom is either in or very close.
Crypto winter has taken a toll on even the most robust cryptocurrencies, and traders and investors all over the world are still left wondering if we have seen the bottom yet. But with an uncertain macro outlook, the current state of play isn’t immediately obvious.
With that in mind, we take a look at five popular cryptocurrency market indicators to see what the market looks like from a technical standpoint. Bear (pun intended) in mind that no indicator can perfectly predict the market.
200 Week Moving Average
Moving averages are a popular way to track Bitcoin’s price over time, and the 200-week moving average — that is Bitcoin’s average price over the past 200 weeks (almost 4 years) — has held up as the approximate bottom for each bear market.
Source: lookintobitcoin.com
As shown above, Bitcoin typically trades at just below the 200-week MA at its bear market low points. At its current price of almost $28,000, Bitcoin has returned above its 200-week MA after spending 7 months below it — the longest time below its 200-week MA to date.
Now that BTC has resumed trading above the 200-week MA, this indicates the bottom is now behind us and the market is moving into bullish territory.
Takeaway from this indicator: The bottom is probably in (Not financial advice).
Rainbow Chart
Despite its juvenile appearance, the Bitcoin Rainbow Chart is a surprisingly powerful top and bottom indicator — and has demonstrated its power time and time again.
The chart takes the form of a basic logarithmic regression that shows the evolution of Bitcoin’s price over time. On top of the chart, nine different colored bands are overlapped to indicate periods where Bitcoin is expensive, cheap or just right compared to its predicted price.
Source: lookintobitcoin.com
Historically, the blue “fire sale” band has held up as a solid indicator of the market bottom and Bitcoin has rarely traded inside this band for long. The last two times this occurred were during the COVID-19-induced flash crash back in March 2020 and most recently in December 2022, when Bitcoin fell below $18,000.
Given that Bitcoin has now recovered from the blue band and is now hovering in the green “BUY!” zone, this indicates the bottom was reached in December 2022.
Takeaway from this indicator: The bottom is probably in (Not financial advice).
Hash Ribbons Indicator
Bitcoin's Hash Ribbon indicator examines Bitcoin miner stress by looking for presumed capitulation points. The assumption is that when BTC falls to critically low levels, miners will fall off the network as the process becomes unprofitable.
The Hash Ribbons Indicator essentially shows when miners are under maximum economic stress by highlighting when they give up and begin switching off their systems. This results in a hash rate decline.
If the 30-day moving average drops below the 60-day moving average, it indicates miner capitulation. Whereas a reversal in this trend shows miners are recovering and the hash rate is growing.
Historically, the 30 and 60-day hash rate moving averages have collapsed near the Bitcoin bottom.
According to the indicator’s inventor, Charles Edwards, miner capitulation is "possibly the most powerful Bitcoin buy signal ever".
Source: lookintobitcoin.com
On the above chart, red lines indicate periods of miner capitulation.
Given that the hash rate has now recovered following a drop in both the 30 and 60-day hash rate MAs, this is an indicator that miners are no longer capitulating — a bullish signal. The hash rate 30-day MA is now higher than the 60-day MA, which is also a bullish signal.
Takeaway from this indicator: The bottom is probably in (Not financial advice).
Weekly RSI
The relative strength index (RSI) is one of the more common momentum indicators and is commonly used to track whether an asset is undervalued or overvalued.
This is a simple indicator that measures the magnitude of price changes in an asset to determine whether it is overbought or oversold. An RSI chart is a simple oscillator graph that shows a value reading between 0 and 100.
The lower the number is, the more oversold the asset is. On the flip side, a higher score indicates the asset is overbought.
Here's how RSI values are usually interpreted for Bitcoin:
- RSI => 70: BTC is potentially overbought and a pullback may occur.
- RSI <= 30: BTC is potentially oversold and recovery may occur.
- RSI 30-70: Neutral territory, BTC is neither oversold nor overbought.
Source: tradingview.com
According to the TradingView relative strength index chart, Bitcoin’s weekly RSI currently sits at just north of 60 — meaning it is currently neutral. However, it recently recovered from its lowest weekly RSI in more than 5 years, seen in June 2022.
Based on this, Bitcoin is now in neutral territory and the worst is now behind us.
Takeaway from this indicator: The bottom is probably in (Not financial advice).
The CBBI Index
As far as indicators go, the ColinTalksCrypto Bitcoin Bull Run Index is one of the more simple to get to grips with.
The chart is designed to show which stage of the cryptocurrency market cycle we are currently in. It was trained on data from the blow-off tops seen in 2013 and 2017, and as such, is particularly good at recognizing times when Bitcoin is approaching peak exuberance.
Unlike the other indicators on this list, the CBBI index aggregates multiple other indicators into a single CBBI score that ranges from 0 to 100.
The indicators included are as follows:
- Pi Cycle Top Indicator: Predicts market tops using moving averages.
- RUPL/NUPL Chart: Gauges investor sentiment via unrealized profit/loss ratios.
- RHODL Ratio: Measures HODLer behavior for market cycle predictions.
- Puell Multiple: Analyses miner behavior to predict selling pressure.
- 2-Year Moving Average: Tracks Bitcoin's long-term price trend.
- Bitcoin Trolololo Trend Line: Long-term logarithmic growth curve for Bitcoin.
- MVRV Z-Score: Indicates market tops/bottoms based on realized/unrealized value.
- Reserve Risk: Assesses risk/reward balance using HODLer behavior and price.
- Woobull Top Cap vs CVDD: Compares valuation models to predict tops.
The higher the number, the higher the chance that Bitcoin is at its top this cycle. Conversely, if the number is extremely low, this can hint that the bottom is in.
Source: colintalkscrypto.com
The CBBI score can reach upwards of 80 near the top of a bull market or as low as under 10 close to the bottom.
At the time of writing, it’s sitting at a comfortable 25 — a major recovery from 2, seen in December 2022. This indicates the worst of the bear market is now behind us.
Takeaway from this indicator: The bottom is probably in (Not financial advice).
Writer’s Disclaimer: This article is based on my limited knowledge and experience. It has been written for educational purposes. It should not be construed as advice in any shape or form. Please do your own research.
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