Is The Bottom In? Q1 2023 Crypto Market Update
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Is The Bottom In? Q1 2023 Crypto Market Update

Created 1yr ago, last updated 1yr ago

The question on everyone's mind: is the bottom in, or are we merely in a bear market rally?

Is The Bottom In? Q1 2023 Crypto Market Update

Table of Contents

Timing the bottom is hard. Timing the bottom in a deep bear market doubly so. But those who pulled their legs up in November 2022 are up over 40% on Bitcoin:


The market cap of crypto has also slightly recovered and reclaimed the $1 trillion milestone:


This begets the magical question not even AI can answer:

Is the bottom now in?

This overview provides a by-the-numbers analysis of the market to assess where we are in this bear market.

On-Chain Data Says Bottom Is Probably in

One straightforward and fairly reliable way to assess a bottom is on-chain data. Glassnode provides weekly on-chain updates on Bitcoin's analytics and price dynamics.
One insightful indicator is the market value to realized value (MVRV) ratio: the ratio between the current price and the realized price, which is the price the coins were bought for. A ratio below 1 means holders are, on average, underwater. A ratio above 1 means holders are, on average, profitable. Glassnode identified the following thresholds for the MVRV ratio:
  • 🔵 Cycle Lows typically form if MVRV is below 0.8 (~5% of trading days below)
  • 🟢 Capitulation Starts when MVRV is below 1.0 (~15% of trading days below)
  • 🟡 Euphoria Starts when MVRV is above 2.4 (~20% of trading days above)
  • 🔴 Cycle Peaks typically form if MVRV is above 3.2 (~6% of trading days above)

So, what's the current situation?

Bitcoin has just about reclaimed an MVRV of 1, after trading below 1 for the latter half of 2022 and briefly hitting 0.8, a historical cycle low:

Here is another chart indicating how Bitcoin spent an extended amount of time in the capitulation zone.

It would seem that momentum has shifted. A significant break above the MVRV of its 1-year simple moving average would indicate a momentum shift.

In other words, more holders are holding unrealized profits now than they were on average over the last year. Here's where we stand with this:

It's not a decisive break quite yet. But the momentum is shifting away from the red zone.

Moreover, long-term holders underwater have capitulated, meaning those who really had to sell did so. The chart of long-term holders who realized their loss looks like it peaked:
In another report, Glassnode also looked at ten indicators for tracking a market recovery. To spare you the on-chain technicalities, here's an easy-to-understand overview of how many indicators have been triggered:
Four have been fully confirmed, two are in progress and four have not been triggered, although one is close. The broad picture seems to be that new capital is not yet coming in, and the trend is still weak. On the other hand, selling seems to be exhausted.

That would indicate we are not going up much more. But neither are we going down more than we already have.

What about other indicators?

Trading and Financial Data

Comparing Bitcoin’s spot volume and perpetuals volume to their bull market highs and bear market lows yields interesting results. Spot volume is as high as during the bottom of the bear market. On the other hand, perp volume, which is more indicative of leverage in the system, continues on a persistent downtrend:
That would indicate less leverage in the market compared to previous highs. The same is true for Ethereum. Data from DeFiLlama shows how there would be barely any liquidations until the price slips into the mid-$800s:
However, another indicator is not blinking green just yet. Stablecoins are still flowing out of crypto, indicating that investors continue moving with caution in this market:
Even so, the Financial Stress Indicator of the Office For Financial Research, which aggregates financial data over several capital markets, is the lowest since the beginning of 2022:

What Is the Consensus on Crypto Twitter?

On-chain and financial data is great and all. But have you tried investing your net worth according to the analysis of anons and animal avatars?

Two of the most knowledgeable anons have a bullish bias. Pentoshi is, for now, inclined to see Bitcoin edge higher not lower:
View post on Twitter

The same goes for CryptoDonAlt, who accumulated around the lows and still sits in most of his long position:

View post on Twitter

And also the human avatars on Crypto Twitter think we are more likely to go up than down:

View post on Twitter
View post on Twitter

One notable exception remains CryptoCapo, who has been firm about $12K as the target for Bitcoin. He received a lot of ridicule for his bearish bias but is still sticking to his guns:

View post on Twitter

So is the bottom in for real this time?

Or are we merely in a bear market rally/bull trap?

Many indicators point to significant seller exhaustion and sentiment on social media has slightly improved. However, significant capital is still not flowing into risk assets and crypto, and the macroeconomic situation remains uncertain.

Writer’s Disclaimer: This article is based on my limited knowledge and experience. It has been written for educational purposes. It should not be construed as advice in any shape or form. Please do your own research.

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