3 historically accurate Bitcoin on-chain metrics are flashing 'bottom'

CointelegraphPublished on 2022-10-22Last updated on 2022-10-22

Abstract

Key Bitcoin indicators tracking its market versus fair value, as well as long-term holders' confidence, hint at a market bottom formation.

Bitcoin and other riskier assets slipped on Friday as traders scrutinized macro indicators that suggest the Federal Reserve would continue to hike rates. Nonetheless, the BTC/USD pair remains rangebound inside the $18,000-$20,000 price range, showing a strong bias conflict in the market.
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BTC price holding above $18K since June
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Notably, BTC's price has been unable to diver deeper below $18,000 since it first tested the support level in June 2022. As a result, some analysts believe that the cryptocurrency is bottoming out, given it has already corrected by over 70% from its record high of $69,000, established almost a year ago.

BTC/USD daily price chart. Source: TradingView

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During the 2018 bear market, BTC saw a max drawdown from peak to trough of 84%, lasting 364 days, while the 2014 cycle lasted longer, bottoming after 407 days," noted Arcane Research in its weekly crypto market report, adding:
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"Both bottoms were followed by unusually low volatility."

Bitcoin's historical drawdowns. Source: Arcane Research

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In addition, a flurry of widely-watched on-chain Bitcoin indicators also hints at a potential bullish reversal ahead. Let's look at some of the most historically significant metrics. 
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Bitcoin MVRV-Z Score
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The MVRV-Z Score assesses Bitcoin's overbought and oversold statuses based on its market and fair value.
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Historically, when Bitcoin's market value crosses the fair value, it indicates a market top (the red zone). Conversely, it indicates a market bottom (the green zone) when the market value crosses below the fair value.

Bitcoin MVRV Z-Score. Source: Glassnode

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The MVRV-Z Score has been in the green zone since late June, suggesting Bitcoin is bottoming out.
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Reserve Risk
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Bitcoin's Reserve Risk assesses the confidence of the token's long-term holders relative to its price at the point in time. Historically, a higher Reserve Risk (the red zone) has coincided with market tops, reflecting lower investment confidence at record-high Bitcoin prices.
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Conversely, higher confidence and lower Bitcoin price mean lower Reserve Risk (the green zone), or better risk/reward for investing.

Bitcoin Reserve Risk vs. price. Source: Glassnode

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Bitcoin's Reserve Risk plunged into the green zone in late June, suggesting that BTC may undergo a strong bullish reversal sooner or later.
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Bitcoin Puell Multiple
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The Puell Multiple reflects the ratio of the daily Bitcoin issuance (in U.S. dollars) and the 365-day moving average of daily issuance value.

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Historical data shows Bitcoin market bottoming out when the Puell Multiple drops into the green zone defined by the 0.3-0.5 range. Conversely, the market peaks out when the ratio crosses into the 4-8 red zone.

Bitcoin Puell Multiple vs. price. Source: Glassnode

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As of October, Bitcoin's Puell Multiple is inside the green zone, suggesting a potential price reversal ahead to the upside.
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As Cointelegraph reported, the BTC balance on cryptocurrency exchanges has also fallen to multi-year lows at the fastest pace since June, suggesting that current price levels are becoming an important area of accumulation. 

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