Has Bitcoin hit rock bottom? (Technical analysis)

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Summary of the thesis

With the latest rally, many investors are calling for a Bitcoin (BTC-USD) bottom. In this article, I present compelling evidence that this could be the case, although I still maintain that given the macro outlook, if not a new low, we should retest these recent lows in the second half of the year.

We broke the resistance; for the moment

First of all, it should be mentioned that following the recent rally, Bitcoin broke above the trendline resistance coming from the top of the bear market. This is an initial bullish signal, and combined with other metrics, it helps build a bullish case as long as we can stay above it.

BTC prices and hash ribbons (TradingView)

Another key metric listed below the pricing table is the hash tapes. We can see below the Bitcoin price chart that the 30-day moving average of the hash rate has moved above the 60-day MA. This triggered a buy signal, which in the past has been a good indicator of an impending rally. Hash ribbons show a shift towards positive momentum in Bitcoin mining.

The half cycle

BTC Halving Cycle (looking for Alpha)

The halving cycle has been a theory that has been used to predict Bitcoin highs, lows, and turns for quite some time, and so far it hasn’t failed. We can see that, since its inception, the Bitcoin price follows a very clear dynamic before and after each of its halving events, where Bitcoin’s mining reward is halved.

Following the halving events, Bitcoin rallies for about 2 years. This is followed by a bear market and a consolidation phase as the next halving event approaches.

For reference, the last time Bitcoin bottomed 517 days before its halving. Bitcoin bottomed out at $15,500, just around the 500-day mark

Speaking of cycles, it’s also worth mentioning that during the last bear market, BTC went 386 days below the 200-day MA, which we’ve now breached, after 381 days below.

BTC 50 days MA (Work of authorship)

String Metrics

Other interesting metrics can be found on the Blockchain itself. Since all transaction data is available to us, we can gain valuable insights by looking at what transactions took place and who performed them.

BTC Realized Price (Work of the author using data from Glassnode)

In the table above, we can see a visual representation of the realized price, the realized price for long-term holders, and the realized price for short-term holders.

Now, the realized price, which I talked about before, is the average price at which each bitcoin last moved. In a way, it can be seen as the break-even point of the market. Below the realized price, the market is in loss, and above it is in profit.

Now we also have the short-term holder realized price, which is the realized price for coins held within 155 days, while the long-term holder realized price is the realized price for coins held for 155 days.

It is important to note that these are not static lines, even though they are represented as such in this graph. The value of the realized prize changes with each transaction. This is why the STH realized price is the lowest of the three. This shows that a significant amount of coins were moved in the last sale, which lowered the realized price for this cohort.

What is remarkable is that the real price has now exceeded these three parameters, which has completely changed the dynamics of the market. People who just bought Bitcoin are making a profit, which could revive market sentiment. For a long time, Bitcoin failed to push higher due to a lack of interest from the general public, who were still burned by the descent from all-time highs. As prices go up, this momentum changes and breaking through these breakeven points is a key metric.

What to look for moving forward

So, has Bitcoin bottomed out? The only adequate answer I can give is that there is not enough evidence for this. For starters, we haven’t broken past the 200 week moving average yet.

Bitcoin Outlook (Work of the author)

This metric is also closely watched in Bitcoin. In the past, it has acted as strong support in bear markets, but also as strong resistance. The 200-week moving average currently sits around $24,500. It’s interesting to see that the 50-week moving average is converging here and it’s also very close to where Bitcoin hit a local high in May.

From an Elliott Wave perspective, we also don’t have enough evidence to call for a bottom. We have not yet completed an initial five-wave pulse for a large degree wave 1. Once this is complete, we need to see a corrective retracement that maintains the recent low. This would be a good point to enter the market. But, even so, we wouldn’t really confirm that a bottom has been reached until we get back above the top of wave 1.

To take away

If we can break above the 200-week MA, the next point of resistance would be just south of $30,000. From there, I would expect a substantial pullback which, if corrective, would give us an opportunity for a long rally back to around $20,000, although I can’t give exact levels. I’m still skeptical of this rally since we haven’t reached the price delta, but strong evidence supports the case of a bottom. Ultimately, these are good levels to build a position on, and for those still uncomfortable, a clearer opportunity should present itself in a wave 2 pullback.

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