Bitcoin [BTC] flashed a sell signal at $95k a month ago and has since traded within a sharp descending channel. The downtrend intensified at $90k, driving prices to a low of $60k before a partial recovery and ongoing consolidation.
At the time of writing, BTC traded at $66,988, down 1.75% on the daily charts and 46% from $126k ATH. Despite this prolonged market weakness, analysts remain optimistic and see the end in sight.
Bitcoin: Key metrics flash cycle bottom
With bearish pressure hitting the market, Bitcoin seems to have reached its maximum pain zone.
According to CryptoRus, Bitcoin’s short-term Sharpe Ratio fell to -38. Such low levels have only appeared at major cycle bottoms, including 2015, 2019, and late 2022.
Source: CryptoQuant
During these cycles, the drop marked major exhaustion among sellers, with fewer or no sellers willing to continue dumping. As such, a low Sharpe Ratio has coincided with the end of selling pressure, not the start of a prolonged bear market.
Therefore, when this metric reaches these levels, it has signaled cycle bottoms; in 2015, 2019, and 2022, extreme negative readings were followed by aggressive recoveries.
In addition, two other major metrics have signaled a potential bottom in the cycle. For starters, Bitcoin’s Scarcity climbed to a new all-time high.
Bitcoin’s Stock to Flow Ratio (SFR) rose from 127 to 261, reaching a new high. When SFR hits such elevated levels, it suggests that supply has declined massively.
Source: Santiment
Thus, despite a prolonged downtrend, holders are not selling aggressively, and buyers remain highly active in the market. Often, high scarcity puts pressure on market supply, positioning the market for upward movement.
Finally, Bitcoin’s MVRV Ratio (Z Score) dropped to 2023 lows, hitting a low of $0.445 as of writing. With the MVRV Z score reaching such lows, it suggests that BTC is well below its historical cost basis.
At current levels, sentiment is extremely bearish; thus, weak hands sell at a loss, smart money rises, and illiquid supply increases. These classic wealth transfers have preceded market recovery.
What’s next for BTC?
Despite major metrics flashing a cycle bottom, the market structure remains relatively weak and overly bearish. As such, sellers remain active, while major buyers sit on the sidelines.
As a result, weakened demand has pushed Bitcoin’s Relative Strength Index (RSI) deep into bearish territory, nearing oversold levels. With an RSI reading of 32, selling pressure remains dominant while demand stays low.
At the same time, the DMI trend has held a downtrend for 30 consecutive days.
Source: TradingView
Such market conditions point towards prolonged weakness. If sell pressure continues to hold around while smart money sits aside, BTC will hover around $70k and $65k.
However, if these metric signals hold, and this is the bottom, BTC will break these levels, flip $70k, and eye $90k.
Final Summary
- Bitcoin declined 1.75% to $66,988, extending its bearish trend.
- BTC’s Sharpe Ratio fell to -38 levels historically associated with cycle bottoms.