As Bitcoin’s price hovers in a precarious position above the $25,000 support level, the cryptocurrency market is poised for a potentially significant move. On one hand, there is a chance that Bitcoin will rebound from this support, paving the way for a breakthrough above $30,000. On the other hand, there is a looming threat of a sharp decline, possibly revisiting the $20,000 mark. In this article, we will delve into the current state of Bitcoin, utilizing on-chain analysis and historical data to explore the possible scenarios that lie ahead.
Realized Price in Bitcoin Historical Cycles
The realized price of Bitcoin, a unique indicator that values each Unspent Transaction Output (UTXO) at the price when it was last moved, offers valuable insights into Bitcoin’s historical cycles. Analyzing long-term charts, we observe recurring patterns in market behavior. Historically, each bear market has commenced when the BTC price dipped below the realized price (marked by red circles). This phase marked the culmination of the bear market, ultimately leading to the macro bottom of the cycle.
Conversely, the breakout of BTC price above the realized price (highlighted by green circles) signaled the start of a long-term bull market. During these bullish phases, Bitcoin rarely dropped below the realized price until the subsequent bear market.
The exception to this pattern was observed in March 2020 when global markets crashed due to the COVID-19 pandemic. Bitcoin, too, experienced a sharp decline but later made a bullish retest of the realized price (indicated by a blue circle), offering an excellent buying opportunity.
Examining the current cycle, we find parallels to these historical patterns. Bitcoin dipped below the realized price in June 2022, remaining close to this line before capitulating with the FTX exchange’s collapse in November 2022. However, in January 2023, BTC broke the downward trend and initiated a bounce, leading to a recovery and a rapid retest of the realized price line.
Will BTC Retest $20,000?
Currently, Bitcoin’s price sits at a crucial support level around $25,000. Technical analysis suggests that if this support is breached, a drop to the next support at $23,500 becomes possible. But could Bitcoin plunge even further, retesting the $20,000 mark? The realized price chart implies that such a scenario is conceivable, given that the indicator closely aligns with this level. In line with historical Bitcoin cycles, this would present an enticing buying opportunity.
Renowned analyst @WClementeIII also recently shared a long-term BTC price chart, highlighting various on-chain indicators. He suggests that Bitcoin is in a precarious position from a High Time Frames (HTF) valuation perspective, possibly reaching the lower range (purple and blue lines) on his chart. The purple line corresponds to the realized price, while the blue line marks one standard deviation from the median (orange).
Clemente doesn’t rule out the possibility of testing the lower bounds, emphasizing that any retests of these levels are buying opportunities.
Historically Low Volatility: A Big BTC Move Is Imminent
Another notable analyst, @el_crypto_prof, has drawn attention to Bitcoin’s exceptionally low volatility on high time frames. He pointed out the Bollinger Band Width Percentile (BBWP) indicator for the 2-week BTC chart. For the first time in history, Bitcoin’s volatility in this timeframe has reached historic lows, with Bollinger Bands at their tightest.
Such compression periods are typically followed by sharp volatility spikes. Unfortunately, the BBWP remains directionally neutral, leaving the direction of the impending move uncertain. Moreover, the Relative Strength Index (RSI) on the 2-week interval hovers around 50, indicating no clear trend direction.
In the coming weeks, a significant move could unfold in either direction. In a bearish scenario, BTC might drop to retest the realized price near $20,000, presenting an attractive entry point for investors. Conversely, a bullish scenario could see increased volatility coincide with an uptrend, with $30,000 being a crucial psychological resistance to overcome.
Bitcoin’s current position is marked by uncertainty, with potential outcomes ranging from a retest of $20,000 to a breakout above $30,000. On-chain analysis, historical cycles, and indicators like the realized price and BBWP all suggest that a significant move is on the horizon. As traders and investors navigate this turbulent period, they should remain vigilant, as both opportunities and risks abound in the cryptocurrency market.