Bitcoin Bottom Indicators - What to Expect in the Coming Weeks
In today’s newsletter, we will try to analyze the most famous bottom indicators and answer the question “Is the Bitcoin BOTTOM in!?”
Bitcoin bottom is the million-dollar question (literally) in every bear run, so naturally, there are ways to predict it.
Let's discuss the most accurate indicators
1. The Rainbow Chart :
The rainbow chart uses a simple logarithmic growth curve to forecast the potential future price direction of Bitcoin.
Currently, it is at the lowest level of "Basically a Fire Sale" and is about to dip below. The only time this happened in the past was during the COVID Crash and that was an amazing buying opportunity. The fire sale level has always been a great opportunity too.
So based on past experiences, there is a good chance the bottom is in. A critical caveat is that the top did not reach the red upper band this time, which is a sign of worry. The "rainbow" might be misaligned and need fine-tuning.
Bitcoin Rainbow Chart
2. MRV Z-score indicator :
MVRV Z-Score is a bitcoin chart that uses blockchain analysis to identify periods where Bitcoin is extremely over or undervalued relative to its 'fair value'. It uses the market value (blue line), realised value (orange line) and z-score (red line). Specifically, The MVRV Z-score is a function of the difference between total market cap and realized market cap, divided by the standard deviation of the market cap. This shows by how many standards deviations the market value differs from the realized value. It evaluates if Bitcoin is over or under-evaluated compared to its "normal" value.
Again, the green parts are always amazing buy opportunities but the price could still go down a bit from here based on previous data. We have not touched the lower band yet.
3. Pi cycle indicator :
The Pi cycle indicator forecasts tops and bottoms for Bitcoin. It is based on two long-term moving averages: 471-day simple moving average and 150-day exponential moving average. The signal lights up when the latter falls below the former. Historically, it has been very effective in picking out cycle lows as you can see on the (blurry) chart, doing so successfully in 2015 and 2018. It flashed again this summer, suggesting the low is already in.
4. Hash ribbons indicator :
The Bitcoin Hash Ribbon indicator tries to identify periods where Bitcoin miners are in distress and may be capitulating.
The assumption is that such periods can occur when the price of $BTC is at major lows, and may therefore present a good opportunity to buy the dip.
5. Puell Multiple indicators :
The Puell Multiple is calculated by dividing the daily issuance value of bitcoins (in USD) by the 365-day moving average of daily issuance value. This is rather technical, but importantly, the Puell Multiple uses the upper red band on the chart to show when miner revenues in USD terms are significantly higher than historical norms (in this case the 365-day moving average).
So the Puell Multiple can be a useful Bitcoin forecasting tool to identify based on this metric whether price is too high and needs to drop (when the indicator is in the red zone), or whether it is too low and may need to bounce (indicator is in the green zone). Almost every time the red line reaches the green zone and leaves again, the bottom was in and we are due for a significant bounce.
Personally, this is a good time to DCA with caution as there are no guarantee these indicators will work or not, if they fail we will see very high sell off, and if they succeed we will have a long way for buying more, so DCA some now and buy more when the uptrend starts is my strategy. Rest do your own research, this is NFA :)