According to crypto data analytics firm Cryptoquant, one on-chain metric is giving a definite bitcoin buy signal for the first time since 2019. CryptoQuant’s Profit and Loss (PNL) Index is an index composed of three on-chain indicators related to profitability. of Bitcoin The market recently recovered below its 365-day Simple Moving Average (SMA) after a long gap.
The PnL Index cut both sides of its 365-day SMA in 2020 and 2021. The last time it broke decisively north of its 365-day SMA was back in 2019 after a long period below it, months after the market bottomed. “CQ PNL Index has given a definite buy signal for B T c,” CryptoQuant notes, before adding that “index crossovers have implied the start of a bull market in previous cycles”.
“It is still possible for the index to fall further down,” CryptoQuant warned in a blog post, but Bitcoin Bulls will add this indicator to a growing list of other on-chain and technical signals, all of which are also showing bullish signs.
A growing list of on-chain/technical indicators say bitcoin is down
As discussed in a recent article, a growing confluence of indicators Eight pricing models (looking at network usage, market profitability and balance of money signals) tracked by Glassnode are suggesting that bitcoin may be in the early stages of a bear market recovery.
And these aren’t the only on-chain indicators flashing signs of an upcoming bull market. According to an analysis posted on Twitter by @GameofTrade_, 6 on-chain metrics including accumulation trend score, unit-adjusted dormancy flow, reserve risk, realized value, MVRV Z-score and PUEL multiple, “are a generational long-term buy.” Calling for. chance”.
Meanwhile, an analysis of bitcoin’s long-term market cycles also suggests that the world’s largest cryptocurrency by market capitalization may be in the early stages of a nearly three-year bull market. According to an analysis by crypto-focused Twitter account @CryptoHornHairs, bitcoin is roughly following the path of a four-year market cycle, which has been fully respected for eight years now.
Elsewhere, a widely followed bitcoin pricing model is sending out a similar story. According to the bitcoin stock-to-flow pricing model, the bitcoin market cycle is roughly four years, with prices typically bottoming out somewhere between four-year intervals between “halvings” — bitcoin halvings occur every four years. The year is the event where the mining reward is halved, thus slowing the rate of bitcoin inflation. Past price history suggests that the next big rally for bitcoin will come after the next halving in 2024.
But macro headwinds could push prices lower this week
All of the above indicators suggest that bitcoin is currently a long-term buy. The emphasis on “long-term” here is important. That’s because the macro headwinds that dragged down the world’s largest cryptocurrency by market capitalization haven’t completely disappeared yet.
Indeed, many macro strategists have taken note going into this week’s crucial Fed Policy AnnouncementThere is a significant risk that markets may be underestimating the Fed’s determination to 1) continue raising US interest rates and 2) keep them elevated for some time.
Currency markets are currently pricing in that the Fed only makes 50 bps further rate hikes – one on Wednesday (taking rates to 4.50-4.75%) and one in March (where rates will then peak at 4.75-5.0%). Was on). Markets then expect the cut cycle to begin in earnest before the end of 2023.
Now, this kind of market pricing is not ridiculous – inflation in the US is falling fast and is likely to return to the Fed’s 2.0% target soon, while several leading economic indicators are flagging the possibility that the economy will return to its 2.0% target soon. Will enter recession at the end of the year. The market outlook appears to be that the Fed would like to begin easing to support growth.
And if market expectations about the economy are correct, the Fed will likely start easing later this year. But, judging by recent remarks from officials, the Fed is unwilling to signal an easing bias. The “temporary” inflation debacle of 2021 has badly damaged central bank credibility, and the Fed continues to signal its intent to take a tighter stance on inflation.
Fed Chair Jerome Powell and co. This may well indicate that the bank intends to go ahead with more than 50 bps in rate hikes, which will jolt markets, especially riskier assets, in the short term. In such an instance bitcoin’s big January run-up could stumble on the first of February.
Technicians are marking a lack of key support levels ahead of the $21,500 area, which could be easily retested in such a scenario. A retest of $20,000 and the 200-day moving average and actual price moves just below it should not be ruled out either. The most interesting thing will be how bitcoin reacts to this level. Given all of the above indicators seem to indicate that the bear market is over, many dip buyers may be eager to get their hands on $20,000 bitcoin once again.
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