Is the bottom in for Bitcoin? These on-chain metrics say… possibly
Bitcoin’s rocky start to 2022 might be behind us for now, if at least two key on-chain data indicators are to be trusted.
Is the bottom in? It can’t be called with certainty just yet, but the OG crypto’s price action over the past 24 hours is encouraging.
One thing to keep in mind, though, is the US Consumer Price Index (CPI) report, which has now been revealed. No real surprises that the annual inflation percentage increase for the past year is high. In fact, at 7%, it’s officially the highest it’s been in the US for 40 years.
This could well bring further volatility into play – along with a strengthening of the BTC inflation-hedge narrative, or the US Federal Reserve increasing its quantitative tightening with higher interest rates. (Or maybe a bit of column A and column B.)
The market might need a while to see how reactions to this fully play out, but, in the meantime, some data…
As shown from data collated by on-chain analytics firm CryptoQuant, and as reported by Cointelegraph, nearly 30,000 BTC has left major exchanges on January 11. This is the most movement seen in this regard since September 10.
It’s seen as a bullish indicator due to the assumption that Bitcoin holders are moving away from selling positions on exchanges and seeking to hoard, or HODL.
After dipping briefly below US$40k earlier in the week, BTC has recovered strongly over the past 24 hours or so, and is currently changing hands for US$43.6k.
The Crypto Fear & Greed Index may still be showing “Extreme Fear” right now, but the positive sentiment seems to be largely returning to Crypto Twitter.
— ＤＲＥＡＤ ＢＯＮＧＯ (@DreadBong0) January 10, 2022
Blockstream’s Samson Mow, for instance, is seeing a move back up from the US$40k level based on a market with higher volatility conditions at the moment…
Volumes are thin. That means the market can have huge moves up or down easily. Given that we had a big move down already, and everyone is buying like no tomorrow, I’d say the next move is up. 🚀
— Samson Mow (@Excellion) January 12, 2022
This one is reportedly a very reliable indicator and points to the possibility of Bitcoin reaching the final stage of a bearish trend and overall 40 per cent correction over the past couple of months.
The entity-adjusted dormancy flow, according to analytics firm Glassnode, is “the ratio of the current market capitalisation and the annualised dormancy value (measured in USD)”.
Dormancy, in this context, means the average number of days each coin transacted remains unmoved.
The dormancy-flow figure has currently dropped below US$250k, which, looking at the chart below, has clearly been a marker of major price bottoming in the past.
In a report published earlier this week, Glassnode wrote: “Entity-adjusted dormancy flow recently bottomed out, showing a full reset of the metric. These events historically print at the cyclical bottom,” adding:
“Low dormancy flow values indicate moments where market cap is undervalued relative to the yearly sum of realized dormancy, indicating moments where bitcoin is a value price.”
The last time Bitcoin fell into the green zone indicated, its price bottomed out just below US$30k, before beginning a run up to the all-time high of near US$69k on November 10.
Food/hopium for thought.