The bull market has gone, and the reality of the cryptocurrency’s long winter is sure to give traders a bad case of shivers. Bitcoin (BTCThe price has dropped to lows and not even the expected bears, and some investors will probably scratch their heads wondering how BTC will bounce back from this epic drop.
Prices are dropping daily, and the current question on everyone’s mind is: “When will the market bottom be and how long will the bear market last?”
While it is impossible to predict when a bear market will end, studying past downtrends provides some insight when the stage is nearing its end.
Here is a look at five indicators that traders use to help tell when crypto winter is approaching.
The crypto industry is starting to recover
One of the classic signs of crypto winter is massive layoffs across the crypto ecosystem as companies look to cut costs to survive the tough times ahead.
The headlines throughout 2018 and 2019 were filled with layoff announcements from major players in the industry, including technology Companies like ConsenSys and Bitmain, as well as cryptocurrency exchanges such as Huobi and Coinfloor.
The recent surge of layoffs ads like Coinbase reduced staffing by 18% A 10% cut in Gemini is worrisome, and given that the current bear market has only just begun, layoffs are likely to escalate. This means that it may be too early to point to this metric as evidence that a bear market is in decline.
There is a good sign that crypto spring is approaching when companies start hiring again and new ventures are launched with notable funding announcements. These are indications that money is starting to flow back into the ecosystem and that the worst of the bear market has been in the past.
Watch to see if Bitcoin’s 200-week SMA becomes resistance or support
The technical development that signaled the end of a multiple downturn in Bitcoin history is when the price drops below 200 weeks simple moving average (SMA) then climbs over it again.
As shown in the regions highlighted By the purple arrows on the chart above, previous instances where BTC price dropped below the 200-week simple moving average, the light blue line, and then rose back above the previous measure of bullish trends in the market.
A strong recovery of BTC price above the realized price, which is the total purchase price of all Bitcoin and represented by the green line in the above chart, can also be used as additional confirmation that the market trend may turn positive as well.
The Relative Strength Index (RSI) is king in calling bottoms
Another technical indicator that can provide insight when the lowest levels are in a bear market is the Relative Strength Index (RSI).
More specifically, previous bear markets have experienced Bitcoin RSI Drops To Oversold The area is down about 16 degrees by the time BTC has established a low.
Based on the above two cases with orange circles, the confirmation that the bottom does not come until the RSI rises again above 70 to the overbought territory, indicating that the increase in demand has once again returned to the market.
Realized market value
The Realized market value (MVRV) Z-score is a scale designed “to identify periods when Bitcoin has been too high or undervalued relative to its “fair value.”
The blue line on the chart above represents the current market capitalization of Bitcoin, the orange line represents the realized price and the red line represents the Z-score which is the “standard deviation test that pulls the extremes in the data between market capitalization and realized value.”
As seen on the chart, previous bear markets have coincided with a Z score of less than 0.1, which is marked by the green box at the bottom. The start of a new uptrend was not confirmed until the scale rose again above the 0.1 degree.
Based on historical performance, this metric indicates that there are still more downsides in the near future for Bitcoin, followed by an extended period of sideways price action.
The 2-year moving average multiplier
The ultimate metric that can offer a simplified way for bitcoin investors to know when the bear market is ending is the multiplier of the two-year moving average. this scale Tracks The 2-year moving average and a multiple of 5 times the 2-year moving average (MA) with the price of bitcoin.
Anytime the bitcoin price drops below the 2-year moving average, it enters the market Bear Market District. Once the price rises again above the 2-year moving average, an upward trend will follow.
On the flip side, the price rising above the 2-year moving average x5 line indicates a complete bull market and provides a good time to take profits.
Traders can use this metric as an indication of the right time to build up, as indicated by the green shaded areas, or they can wait for the BTC price to clear two years as a sign that the bear market is over.
No matter which method a trader chooses to apply the indicators described above, it is important to remember that no indicator is perfect and there is always a risk of further downsides.
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