Bitcoin price broke out this week, but has the trend changed?

BTC’s price attempted to break out of range before retesting underlying support. Is a trend change at hand, or will the price continue to consolidate?

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The publication date of the newsletter will remain the same, and the content will still place a heavy emphasis on the technical and fundamental analysis of cryptocurrencies from a more macro perspective in order to identify key shifts in investor sentiment and market structure. We hope you enjoy it!

Time to go long?

This week, Bitcoin’s (BTC) price has perked up, with a surge to $21,000 on Oct. 26. This led a handful of traders to proclaim that the bottom might be in or that BTC is entering the next phase of some technical structure like Wyckoff, a range break or some sort of support resistance flip.

Prior to getting all bullish and opening 10x longs, let’s dial back to a previous analysis to see if anything in Bitcoin’s market structure has changed and whether the recent spat of bullish momentum is indicative of a wider trend change.

When the last update was published on Sept. 30, Bitcoin was around $19,600, which is still within the bounds of the last 136 days of price action. At the time, I had identified bullish divergences on the weekly relative strength index (RSI) and moving average confluence divergence (MACD). There were also a handful of potential “bottoming” signals coming from multiple on-chain indicators, which were at multi-year lows.

Let’s take a look at how things are looking now.

The Bollinger Bands are tight

The Bollinger Bands on the daily time frame remains constricted, and this week’s surge to $21,000 was the expansion or spike in volatility that most traders have been expecting. As is par for the course, after breaking out from the upper arm, the price has retraced to test the mid-line/mid-band (20MA) as support.

Despite the strength of the move, the price remains capped below the 200-MA (black line), and it is unclear at this moment if the 20-MA will now serve as support for Bitcoin’s price.

After bouncing off a near-all-time low at 25.7, the weekly RSI continues to trend upward and the bullish divergence identified in the previous analysis remains in play. A similar trend is also being held by BTC’s weekly MACD.

In the same chart, we can see that the most recent weekly candle is en route to creating a weekly higher high. If the candle closes above the range high of the previous five weeks and the price sees continuation over the coming weeks with a daily or weekly close above $22,800, this could be the makings of a trend reversal.

On the daily timeframe, BTC’s Guppy multiple moving averages (GMMA or Super Guppy) indicator is eyebrow-raising. There is compression of the short-term moving averages, and they are converging with the long-term moving averages, which typically indicates an impending directional move or, in some instances, a macro trend reversal in the making.

For the past few weeks, Bitcoin’s “record-low volatility” has been the talk of the town and when using the Bollinger Bands, the GMMA and BVOL, the tightening price range does hint at expansion, but to what direction remains a mystery.

Bitcoin has been trading in the $18,600–$24,500 range for 36 days and from the perspective of technical analysis, the price remains near the middle of that range. The move to $21,000 did not set a significant daily higher high nor escape from the current range, which essentially is a sideways chop.

The price is holding above the 20-day moving average for now, but we have yet to see the 20-MA cross above the 50-MA, and the majority of the Oct. 26 rally has retraced back to the low $20,000 level.

A more convincing development would involve Bitcoin breaking out of the current range block to test the 200-MA at $24,800 and eventually making some attempt to flip the moving average to support.

A further extension to the $29,000–$35,000 range would inspire confidence from bulls looking for a clearer sign of a trend reversal. Until that happens, the current price action is simply more consolidation that is pinned by resistance extending all the way to $24,800.

Related: Why is the crypto market up today?

Bitcoin on-chain data says to accumulate

Like BTC’s spot price, the MVRV Z-Score has also bounced around in the -0.194 to -0.023 zone for the past three months. The on-chain metric reflects a ratio of BTC’s market capitalization against its realized capitalization (the amount people paid for BTC compared to its value today).

In short, if Bitcoin’s market value is measurably higher than its realized value, the metric enters the red area, indicating a possible market top. When the metric enters the green zone, it signals that Bitcoin’s current value is below its realized price and that the market could be nearing a bottom.

According to the MVRV Z-Score chart, when compared against Bitcoin’s price, the current -0.06 MVRV Z-Score is in the same range as previous multiyear lows and cycle bottoms.

Reserve Risk

Bitcoin’s Reserve Risk metric displays how “confident” investors are contrasted against the market price of BTC.

When investor confidence is high, but BTC’s price is low, the risk-to-reward or Bitcoin attractiveness versus the risk of buying and holding BTC enters the green area.

During times when investor confidence is low, but the price is high, Reserve Risk moves into the red area. Historical data suggests that building a Bitcoin position when Reserve Risk enters the green zone has been a good time to establish a position.

Currently, we can see that over the past six months, the metric has been carving out what investors might describe as a bottom. At the time of writing, reserve risk is rising toward 0.0009, and typically, crossing the 0.001 threshold into the green zone has marked the start of a recovery.

Looking forward

Multiple data points appear to suggest that Bitcoin’s price is undervalued and still in the process of carving out a bottom, but none confirms that the actual market bottom is in.

This week, and in previous months, multiple Bitcoin mining businesses have publicly announced the need to restructure debt, the possibility of missed debt payments, and some have even hinted at potential bankruptcy.

Most publicly listed miners have been selling the majority of their mined BTC since June, and the recent headlines concerning Compute North and Core Scientific hint that Bitcoin’s price is still at risk due to solvency issues among industrial miners.

Data from Glassnode shows the aggregate size of miner balances hovering around 78,400 BTC being “held by miners we have labelled (accounting for 96% of current hashrate).”

According to Glassnode, in the event of “income stress,” it is possible that miners will be forced to liquidate tranches of these reserves in the open market, and the knock-on effect on Bitcoin’s price could be the next catalyst of a sell-off to new yearly lows.

This newsletter was written by Big Smokey, the author of The Humble Pontificator Substack and resident newsletter author at Cointelegraph. Each Friday, Big Smokey will write market insights, trending how-tos, analyses and early-bird research on potential emerging trends within the crypto market.

The views and opinions expressed here 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 conduct your own research when making a decision.