Bitcoin (BTC) is down over 67% in 2022 and is now oscillating between a tight trading range defined by $28,000 as preliminary support and $30,500 as preliminary resistance.
The sell-off comes in the wake of dovish Federal Reserve policies and uncertainties in the crypto market, led by Terra, an algorithmic stablecoin project whose native token LUNA fell 99% earlier in the month.
Nonetheless, Bitcoin’s decline has cooled somewhat as May draws to a close, leaving speculators with hope that the token is about to bottom out.
Something like this could play out for #Bitcoin. Notice the lower left corner where we had a double bottom before we got a green wave. We are currently sitting at the bottom of the wedge. We can go a little deeper and form another double bottom before turning back. pic.twitter.com/feuzp5tiDZ
— BitcoinAlArab (@BitcoinAlArabx) May 23, 2022
Interestingly, Bitcoin’s Fear and Greed Index (F&G) is also pointing to the same scenario, Arcane Research notes in its latest weekly report.
Bitcoin F&G readings hit March 2020 lows
In detail, Bitcoin’s F&G scored 8 on May 17, indicating “extreme anxiety,” a first since March 2020.
“We see that buying fear used to be a profitable strategy when it comes to measuring the mean and average returns of previous periods of extreme fear,” Arcane wrote, citing the four instances where Bitcoin’s F&G had fallen to 8.
Bitcoin Price Median Returns After Reaching “Extreme Fear” Levels. Source: Arcane Research
Meanwhile, Ben Lilly, market researcher at Jarvis Labs, added that Bitcoin’s F&G Index falling below ten signals the extreme possibility of the market bottoming. He also noted that buying bitcoin when his F&G score is below 10 is a good short-term strategy, saying:
“It turns out that the strategy where you hold it for less time produced better results. That is, the strategy where you sold after F&G went above 35 (yellow line on chart). [below]) gave better results than a reading of 50 (orange) and 80 (red).”
F&G returns for bitcoin. Source: Ben Lilly Twitter handle
On the other hand, Arcane emphasized that not all lower F&G scores have historically guaranteed bullish retracement moves; some preceded continued sell-offs. For example, on April 7, 2018, Bitcoin fell almost 11%, just sixty days after its F&G hit extreme levels of fear.
Other indicators signal bottom
Additional signs of a possible Bitcoin market come from multiple on-chain indicators.
For example, Glassnode’s MVRZ Z-Score, which assesses when Bitcoin is undervalued/overvalued based on its “fair value,” is approaching the green zone that preceded the cryptocurrency’s massive recovery rallies, as shown in the chart below.
Bitcoin MVRV Z-Score. Source: Glassnode
At the same time, the Long Term Output Profit Ratio (LTH-SOPR) indicator, which “evaluates the profit ratio of all market participants by comparing the value of outputs in time expended versus time created,” also suggests that Bitcoin has bottomed out .
In particular, if the LTH-SOPR value falls below 1, it shows that some long-term Bitcoin holders could sell BTC at a loss. Conversely, a value above 1 shows that you could sell for a profit.
On May 25, the LTH-SOPR is 0.72, which could mean a potential bottoming in the Bitcoin market as people will hesitate to sell BTC at a loss.
Bitcoin LOTH:SOPR (SMA 7). Source: CryptoQuant
Sell-off warnings remain for BTC
Nonetheless, contrary to some other bearish signs elsewhere in the market, the uplifting bottom indicators are appearing, calling as high as $15,500 and even below $10,000.
For example, Scott Minerd, Chief Investment Officer at Guggenheim, argues that Bitcoin is on its way to $8,000, down 70% from today’s price. Minerd cites a dovish Federal Reserve bearish outlook on Bitcoin, which has had a positive daily correlation with Nasdaq since February 2022.
Correlation between BTC/USD and Nasdaq 100. Source: TradingView
Technically, bitcoin could indeed continue falling towards the $22,000-$26,000 range before bottoming out.
Related: Bitcoin Death Cross data suggests 43% drop in BTC price bear market
These levels coincide with two historical support levels – the 200-day exponential moving average (200-week EMA; the blue wave) and the 200-day simple moving average (200-week SMA; the orange wave) – the marked the end of BTC’s previous bearish cycles.
Weekly BTC/USD price chart. Source: TradingView
“On the downside, the May 12 low of $25,000 is the next support level below $29,000,” noted Arcane researchers Vetle Lunde and Jalan Mellerud, adding that Bitcoin’s “next critical support level” is around 20,000 $, the high of 2017. Excerpts:
“On the upside, $30,500 has been a strong resistance area for the past week. If BTC breaks resistance, $35,000 is the next key resistance area.”
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.
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