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By: Marcus Sotiriou, Analyst, UK Digital Asset Broker global block
Bitcoin plummeted to $34,000 over the weekend as its correlation with U.S. stocks strengthened. The rapidly changing policy of the Federal Reserve in response to rising inflation has caused great fear in both traditional and crypto markets.
Bitcoin’s daily RSI (Relative Strength Indicator) technical indicator has reached its lowest level since March 2020, when the COVID crash occurred. Additionally, the weekly RSI is currently at 37, which is generally considered to indicate oversold prices. The fact that every bear market bottom on the weekly RSI is between 29-35 suggests that if you believe in the long-term value of the asset class, the risk/reward is in favor of buying in this area.
Additionally, the MVRV ratio (market value divided by realized value) is a metric that many analysts are looking at. It is currently at 1.50, indicating that Bitcoin wallets still have 50% unrealized profits. Historically, bear markets have bottomed out when the ratio is below 1, which provides generational buying opportunities – so this is another important indicator to watch in the coming weeks/months in case there is a More down.
However, I don’t think the bull/bear determination is as clear-cut as in previous cycles, as the market structure changes dramatically as institutions enter the space. Now, it is clear that Bitcoin is in a volatile environment (around $29,000 to $69,000) rather than a trending environment (as we saw in the first half of 2021, the entire cryptocurrency market is in line in an upward trend). We are near the low end of the range in the low $30,000 region, which suggests that the risk/reward here is in favor of buying, consistent with the RSI above.
El Salvador bought an additional 410 bitcoins for $15 million on Friday, bringing its total holdings to 1,801 bitcoins. In just a few months, El Salvador’s government-backed bitcoin wallet has attracted 4 million users, more than 60% of its population, while only 30% have bank accounts! I think El Salvador’s impressive adoption rate will help entice other countries to follow their lead in making Bitcoin fiat this year, despite the price volatility we’re currently experiencing.
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