By Marcus Sotiriou, Analyst at the UK based digital asset broker GlobalBlock
Bitcoin plummeted to $34,000 over the weekend as its correlation to the US stock market strengthens. The rapidly changing Federal Reserve policy in response to rising inflation has caused extreme fear in both legacy and crypto markets.
Bitcoin has reached its lowest level on the daily RSI (Relative Strength Indicator) technical indicator since March 2020, which was the time of the COVID crash. Also, the weekly RSI currently sits at 37, which is usually considered as indicating the price is oversold. The fact that every bear market bottom for Bitcoin has ranged between 29-35 on the weekly RSI suggests that the risk/reward is advantageous for buying in this area if you believe in the long-term value of this asset class.
Furthermore, the MVRV ratio (market value divided by realised value) is an indicator that many analysts are studying. It is currently at 1.50, indicating that Bitcoin wallets still have 50% unrealised profits. Historically, bear markets have bottomed when the ratio reaches below 1, which has provided generational buying opportunities – hence this is another great indicator to watch out for over the coming weeks/months in the case of more downside.
However, I think the determination of a bull/bear market is not as clear as previous cycles, due to the structure of the market changing drastically with institutions entering the space. Now, it is apparent that Bitcoin is in a ranging environment (between $29,000 to $69,000 approximately) rather than a trending environment (like we saw for the first half of 2021, where the whole crypto market was in a consistent uptrend). We are near the low end of the range in the low $30k region, which indicates that this the risk/reward here is advantageous to buy, in confluence with the RSI mentioned above.
El Salvador purchased another 410 Bitcoin on Friday, for $15 million, bringing its total holdings to 1,801 Bitcoin. Over just a few months, El Salvador has onboarded 4 million users for its government-backed Bitcoin wallet, which is over 60% of its population, whilst only 30% have bank accounts! I think El Salvador’s impressive adoption rate will help entice other countries to follow them in making Bitcoin legal tender this year, despite the volatile price action we are currently experiencing.