Bear markets have historically been challenging for traders. Traditional indicators that identify good entry points cannot predict how long a Bitcoin winter can last. So, which metrics and indicators should we look at in such a case? Crypto research firm Delphi Digital has released some charts to review. Here are the details…
Have we seen the bottom in Bitcoin price?
The recent return of Bitcoin (BTC) above the psychologically important $20,000 price level was a sign of the bottom for many traders. However, the data suggest that a short-term relief rally may not be enough evidence for a trend reversal. Cryptocurrency research firm Delphi Digital provided evidence in a recent report that suggests caution. According to the company, we need to go through a more “painful process” before we are convinced that we have seen the bottom in the market.
Despite the pain felt since Bitcoin’s price peaked in November, the comparison between that time and the 2017 market peak points to the possibility of further declines in the short term. As we reported on Kriptokoin.com, in the previous bear markets, the BTC price dropped by about 85 percent from its high to its low. According to Delphi Digital, if history were to repeat itself in the current environment, it would mean “a drop of just over $10,000 and another 50 percent drop for current levels.”
There is also a big risk for Ethereum
The outlook for Ethereum (ETH) is even worse as the previous bear market saw its price drop 95 percent from the top to the bottom. If the same scenario happens this time, Ethereum price could drop as low as $300. Delphi Digital used the following statements:
The risk of re-experiencing a similar collapse is higher than most people probably anticipate, especially if BTC fails to hold support in the $14,000-$16k range.
Oversold conditions apply
For traders trying to understand where the bottom is in the current market, the data shows that “previous major market bottoms coincided with extremely oversold conditions.” As the weekly chart below shows, BTC’s 14-week RSI has recently dropped below 30 for the third time in its history. The previous two events are approaching a market floor.
While some may see this as a sign that now is a good time to re-enter the market, Delphi Digital has issued a warning to those expecting a “V-shaped” recovery. Bitcoin recently dropped below its 200-week SMA for the first time since March 2020. Historically speaking, the BTC price has only traded below this level for a few weeks in previous bear markets, suggesting that a bottom may be found soon. The firm used the following statements:
In the previous two examples, BTC fluctuates sideways for several months before finally staging a strong recovery. A look at the 200-week simple moving average (SMA) also raises questions about whether the historical support level can be held again.
Final capitulation: what happened?
What the market is really looking for right now is eventual capitulation, which historically marks the end of a bear market and the beginning of the next. While market sentiment is at its lowest point since the COVID-19 crash in March 2020, it hasn’t quite reached the depths of despair seen in 2018. Delphi Digital used the following statements:
We may need to see some more pain before the emotions hit rock bottom.
Weakness in the crypto market has been visible since late 2021, but the real driving force behind the market crash includes inflation and rising interest rates. Rising interest rates tend to be followed by market corrections. Considering that the FED intends to maintain the course of interest rates; Bitcoin and other risk-free assets are likely to correct further.
One final metric that indicates when a final capitulation event should occur is the percentage of BTC supply in profit. Most recently, this rate was 40 percent. According to data from Glassnode, this metric is currently at 54.9 percent. According to experts, this adds credibility to the idea that the market may experience another drop before the real bottom hits.
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