Journalist
Posted:
Bitcoin [BTC] has witnessed significant short-term volatility since Monday, February 24. Over the past five days, the price fell from $66.6k to $62.5k and rose to $70k on February 25.
At the time of writing, this rally was followed, with BTC trading at $66k, down 3.25% in 24 hours.
Crypto market participants were quick to attribute the volatility to Jane Street, Wintermute and other unnamed macro hedge funds. But AMBCrypto pointed out that the current long-term selloff did not start in February.
It traced back to the events of 10/10, and the losses since then were part of a cyclical reset. Selling pressure is easing, but the transition to market-wide reaccumulation still seems far away.
Source: CryptoQuant
Negative financing rates in February reinforced the idea that bears would maintain control of the market. Market sentiment has been weak and price increases have sold off.
Solving the Divergent Bitcoin Cycle Indicators
Crypto analyst Axel Adler Jr pointed out the abnormal MVRV-Z score. This metric measures the normalized deviation of market capitalization from realized capitalization. Negative values indicate that the market price was below the “fair value price” on the chain.
At the time of writing, the MVRV Z-score was -2.28, having fallen to a local low of -3.38 on February 5. For context, the December 2018 bottom saw scores of around -1.6. In November 2022 it was -1.4.
The analyst concluded that the market is in a statistically unusual compression zone relative to the realized capitalization. The reason behind this could be the advent of ETFs. This has increased the cost base of the network, which helps explain the extremes of the Z-score.
At the same time that the MVRV Z-score hit an all-time low, Bitcoin NUPL was at 0.197. It was in the market sentiment zone labeled ‘hope’. A drop below 0 is generally necessary to mark the cycle bottom.
AMBCrypto had warned about the same in an earlier report. Market capitulation was not yet in sight and it could take months for it to materialize.
Another metric to keep an eye on is the long-term holder MVRV. Only BTC older (specifically UTXO lifetime) than 155 days will be taken into account. A value of less than 1 implies that even this cohort is on average underwater.
At the time of writing, the LTH MVRV is 1.61. Combined with the short-term bearish pressure, there is a real threat of a BTC price surge to $60,000. A drop below these lows could lead to an intense selloff or capitulation.
Final summary
- The MVRV Z-score mathematically underlined that BTC was historically undervalued, but other onchain metrics pointed to even more downsides.
- Long-term investors in Bitcoin can aim to stay out of a capitulation event before slowly trying to get back in.