Downside Mode Activated – Crypto Piece
Why We Are Calling A Local Top?
Some are calling for a local top on Bitcoin following the ETF-approval announcement, while others are calling for prices in the $50k territory. This article lays out the key metrics to help you understand the reason we are in the first camp.
Bitcoin’s weekly RSI got rejected from the red zone. In all the past cycles, whenever the weekly RSI came from a macro low and got rejected in the red zone, it has systematically fallen to the green zone before getting a footing. We expect a similar development this time around, indicating that there’s more downside to come. You can find our downside areas of interest here.
When a horizontal line is drawn from the top of the red ichimoku cloud, it has marked a very important price level. In the past cycles, Bitcoin has run up to this level following the bear market low, but has seen a meaningful pullback (-30%+) in all instances. With the run-up to $49k, this horizontal level has been hit, indicating that a deep correction is next.
The Fisher Transform indicator is a technical indicator that helps in marking turning points in price. In the last run-up, it hit the 5.99 level (red horizontal line). Whenever this has happened following a macro bottom, it has led to a -30%+ correction.
Bitcoin MVRV Z-Score is an on-chain model that uses blockchain analysis to identify periods where Bitcoin is extremely over or undervalued relative to its “fair value”. Whenever this metric reaches 1.54 for the first time following a bear market low, it has marked -30%+ pullbacks. This level has also been hit in the recent run-up.
Bitcoin’s monthly RSI has also signaled a pullback is in the making. Connecting the levels where the past cycle’s -30%+ pullbacks have occurred gives a downward sloping line as shown in the lower panel. The monthly RSI has just reached that level in January, providing confluence with other indicators suggesting a meaningful pullback.
The Stochastic Momentum Indicator (SMI) has gotten rejected from a critical level of 89.65 (red horizontal line). Similar to some of the previously mentioned indicators, reaching the red horizontal line for the first time following a bear market has consistently marked a -30%+ pullback.
Lastly, even the Puell Multiple is pointing to a -30%+ drawdown in the making, given that the price has reached the 2.26 level for the first time after a bear market low. This metric looks at the supply side of Bitcoin's economy - bitcoin miners and their revenue.
The above 7 indicators (and there are more that we’re internally looking at!) are all point to a -30%+ pullback in the making. This would bring Bitcoin to at least the $34.2k, but we believe that BTC is likely to continue a little lower to retest previous resistance as support around the $30k - $32k region. We’ll be the biggest bulls in town once Bitcoin reaches around these regions.
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