In this article, we are going to examine the on-chain situation of Bitcoin trying to provide forecasting on the future price.
Cryptocurrency balances on exchanges, MVRV Z Score and other indicators invite us to be optimistic for the coming months.
However, the technical analysis remains more uncertain and prone to laterality-distribution.
Are we thus in bull market territory, or do we still have to wait for the bears to run their course before we can sing victory?
All the details below.
Bitcoin forecasting: cryptocurrency’s balance sheet on exchanges
Let’s start right away by analyzing Bitcoin’s on-chain data to get an overview of the situation and to be able to engage in proper forecasting of future prices.
Let’s first look at the situation of centralized exchanges, one of the main entities in the crypto market, whose BTC balances are representative of the market momentum.
At present, on leading exchange platforms we can find about 2.27 million BTC, the main players of which are Binance with 650 thousand BTC, Coinbase with 439 thousand BTC, and Bitfinex with 320 thousand BTC.
What stands out most to the eye is the bearish trend of this metric, which now sees it reaching a multi-year low that had not been touched since February 2018.
Overall a “low” number of coins on exchanges is positive because it lets us know that holders are accumulating and gradually removing their Bitcoin from exchanges.
In parallel, a limited reserve of BTC on the exchanges could lead to a supply shock if only demand starts to pick up.
It is very interesting to look at this data with a magnifying glass and focus only on the Bitfinex exchange, whose Bitcoin balances have been very useful in the past for making future coin price forecasting and deciphering market tops and bottoms.
At the height of the 2018 bear market, we can see how Bitfinex’s balance quickly declined, going from 370k to 240k in a matter of weeks and opening the floodgates to a recovery of the cryptocurrency.
Right now a drop in the number of Bitcoin held by this exchange could signal the official end of the bearish market, as happened in 2018 and usher in the bullish advent.
We will monitor this metric very closely in the coming weeks.
Analyzing the balance sheet of cryptocurrency exchanges is not the only way to forecast Bitcoin’s performance. There are a variety of on-chain indicators that can help us analyze the overall market picture more clearly so that we can understand what phase we are in now.
One of the most widely used by analysts is definitely the “MVRV Z Score,” which identifies when the price of an asset is near or far from its “fair value.”
The indicator gives us a score based on 3 separate data points: market capitalization in dollars, realized value (product of the number of coins in circulation and average price at which the coin was last moved), and standard deviation that extracts the extremes in the previous data.
When the MVRV Z Score is in the green zone, near the 0 face value, it means that we are in a level that has historically proven to be excellent for making purchases.
On the other hand, when the metric is in the red zone, with a score above 7, it means that we are close to market highs and it is cheaper to sell.
Right now the score is 0.67 and with an optimistic outlook for the coming months of Bitcoin, signaling that we are at the beginning of the bullish market.
Another very interesting indicator to watch is the “Rainbow chart” which uses a logarithmic growth curve to predict the potential future direction of Bitcoin’s price.
According to LookintoBitcoin’s data, right now we are in a sell-off phase of the asset, comparable to the lowest levels ever recorded during the end of the bear markets of 2015 and 2019. A similar value to the current one was also touched during the outbreak of the COVID-19 pandemic, which caused all financial markets to capitulate and then see an immediate recovery.
Looking at this data, we can only anticipate a rise for the coming months and be optimistic about the long term.
Technical analysis of Bitcoin’s price: uncertain short-term outlook
Instead, turning now to a purely technical analysis, we can see how the price chart is not as smiling as the on-chain data.
Bitcoin is attacking the $29,000 level right now, trying to break it downward and continuing its short term bearish trend.
From 14 July onward, after the ugly red candle recorded that erased the gains of the previous days, BTC has remained consistently below the 10-period exponential moving average on a daily time frame, hinting that it is the bears that are maintaining control.
At the moment, the closest supports we can rely on are the $27,000 and $25,000.
On the other hand, a reversal and recovery of $31 thousand could trigger a bull run restart, although for now this hypothesis does not seem to be the most plausible one.
What is also frightening is the RSI indicator that shows a bearish divergence between the values recorded at the beginning of the year and the current ones.
Even though Bitcoin prices in January were indeed significantly lower than those recorded at this time, the Relative Strength Index indicator showed significantly higher levels.
Decreasing highs for the RSI were accompanied by increasing highs for the cryptocurrency’s price: by no means good!
It should also be noted how from late March onwards volumes on exchanges have been almost non-existent, fueling the fears of traders who fear a sharp decline these days.
Generally, when there are few trades in the air, price movements take on a relatively low level of reliability, given that they can be undone in a short time and with little capital.
In this sense, the positivity triggered in Q2 2023 through the advent of hedge funds such as BlackRock in the sector, may not have brought the desired effects, and on the contrary may have manipulated investor sentiment in a framework that should have been bearish and will be discounted in the coming weeks.
At this time of uncertainty, it is better not to be exposed to leveraged trading and operate only in the spot market.
Last but not least, always do your research and considerations!