Determining the bottom of the market is difficult, but traders can use these five indicators to get an early signal of when the bear market is about to end.
The Bull Market is gone and the reality of an extended crypto winter is sure to scare traders. Bitcoin price has dropped to lows, some investors may be scratching their heads wondering how BTC will recover from this devastating decline.
Prices are falling every day and the question on everyone's mind is: “When will the market bottom and how long will the bear market last?” While it is impossible to predict when a bear market will end, studying previous downtrends provides some insight into when the end of the period is near.
Here are five indicators that traders use to help tell when the crypto winter is coming to an end.
1. Cryptocurrency industry begins to recover
One of the classic signs that crypto winter has begun is widespread layoffs in the cryptocurrency ecosystem as companies look to cut costs to survive during the crisis. difficult times ahead.
News headlines throughout 2018 and 2019 were filled with layoff announcements from major industry players, including tech companies like ConsenSys and Bitmain, as well as cryptocurrency exchanges like Huobi and Coinfloor .
Recent layoff announcements such as 18% layoffs at Coinbase and 10% layoffs at Gemini are causing concern, and with the current bear market just getting started, layoffs are likely to increase. This means that it is probably too early to consider this data as evidence that the bear market is in decline.
A good sign that crypto spring is approaching is when companies start hiring again and new projects launch along with notable funding announcements. These are signs that money is starting to return to the ecosystem and that the worst of the bear market is over.
2. Track Bitcoin's 200-week SMA
One technical development that has signaled the end of a bearish period several times in Bitcoin's history was when the price fell below the 200-week simple moving average (SMA) and then rebounded above it.
As shown in the areas marked with purple arrows on the chart above, previous instances where BTC price fell below the 200-week SMA, light blue line, then rebounded above This index precedes rising trends in the market.
3. RSI indicator is useful for identifying bottoms
Another technical indicator that can provide insight into when a bear market low may occur is the Relative strength index (RSI).
More specifically, previous bear markets have seen Bitcoin's RSI fall into oversold territory and drop below the 16 point around the time BTC established a low.
Based on the two cases highlighted with orange circles above, it confirms that a low will not appear until the RSI rises back above 70 into overbought territory, signaling increased demand. has once again returned to the market.
4. Market value versus real value
The market value-to-real value (MVRV) Z-score is a metric designed to “identify periods where Bitcoin is over- or undervalued relative to its ‘fair value’ It".
The blue line on the chart above represents the current market value of Bitcoin, the orange line represents the actual price, and the red line represents the Z-score, which is a “standard deviation test that helps bring out the extremes value in data between market value and actual value.”
As seen on the chart, previous bear markets coincided with a Z-score below 0.1, highlighted by the green box at the bottom. The start of a new uptrend is not confirmed until the metric rises back above the 0.1 point.
Based on historical performance, this metric suggests that there could still be more downside in the near future for Bitcoin, followed by an extended period of sideways price action.
5. 2-year moving average coefficient
One final metric that can provide a simple way for Bitcoin investors to know when the bear market is over is the 2-year moving average multiplier. This metric tracks the 2-year moving average and a 5x multiplication of the 2-year moving average (MA) with the Bitcoin price.
Whenever BTC price falls below the 2-year MA, the market will enter bear market territory. When the price rises back above the 2-year MA, an uptrend will occur.
On the other hand, the price climbing above the x5 2-year MA signals a full-blown bull market and indicates the right time to take profits.
Traders can use this metric as a signal of when it might be a good time to accumulate, as highlighted by the green shaded areas, or they can wait until when the BTC price crosses the 2-year cycle as a signal that the bear market is over.
No matter how a trader chooses to apply the indicators mentioned above, it is important to remember that no indicator is perfect and there is always greater downside risk.
