Bitcoin Crash: How Probable is a Recovery in the Flagship Token?

As we complete six months of 2022, it can be agreed that the crypto market’s flagship token, Bitcoin (BTC) definitely has seen better days. Ever since the beginning of 2022, Bitcoin has been on a gradual downward move, and basically pulling the rest of the market down with it. And there has been a slew of bad news to the hit market too, from the LUNA’s TerraUSD de-pegging fiasco that triggered a major crash to U.S Federal Reserve hiking interest rates, in tandem with the rest of the world to arrest inflation.

BITCOIN (BTC): TECHNICAL OVERVIEW

Here’s a brief look at how the flagship token has performed over the past six months.

Source: Tradingview

From a technical standpoint – Bitcoin is trading well below its 50 and 200-day moving averages (marked in blue and purple). This suggests that the token is well below is short-term and long-term trends and needs to break over these to trigger any meaningful recovery.

Secondly, for a major chunk of these six months, BTC has been trading in a consolidation zone (marked in grey) between $38,000 to $47,000 (~INR 30 lakh to 37 lakh). After breaking down from that level, it rested for a while in another shorter accumulation zone (marked in blue) between $27,000 to $33,000 (~INR 21 lakh to 27 lakh).

Even the Relative Strength Index is barely managing to hold itself above the oversold zone at around 34 at the time of writing. All of these indications suggest that the token is under heavy pressure from all sides and an immediate recovery could be tough.

Check out latest BTC Price, Charts & Data.

HOW HAS THE CRYPTO CRASH AFFECTED BITCOIN (BTC)?

Now let us analyze how Bitcoin has been doing at a more fundamental level. Such a value erosion in such a brief amount of time surely must have affected a large number of participants in the ecosystem. One of the most basic of on-chain metrics to look at while analyzing crypto is the number of new addresses on the chain.

Number of New Addresses | Source: Glassnode

From the chart, it is quite clear that between October and November of 2021, when Bitcoin created its latest all-time-high, Bitcoin’s blockchain saw over 450k new addresses joining the network. Now, that figure stands close to 380k. January 2021 saw over 600k new addresses being added on a daily basis for a while. A conclusion we can draw is that network participant has gone down significantly amid Bitcoin’s falling prices.

Additional Read: Bitcoin Price Prediction

BITCOIN PRICES: TOUGH DAYS AHEAD

Moving on, not just network participants – but institutional and retail investors have also been pulling out their investments from the market. The best ay to look at it is through the assets under management (AUM) of Canada’s Purpose Investment’s spot Bitcoin ETF.

Bitcoin Purpose ETF AUM | Source: Glassnode

Firstly a spot Bitcoin ETF simply means that it is an ETF that invests a pool of public funds to buy actual physical Bitcoins. This is typically not allowed in the U.S, where only Bitcoin futures-based ETFs are only permissible. These ETFs give investors the advantage of buying into Bitcoin without putting in the work behind maintaining a crypto exchange wallet and cold wallets alongside that.

Hence, this data is a clear indication of how retail and institutional investors are reacting to market situations. As evident from this chart, the Purpose Bitcoin ETF saw nearly 75% of its AUM being removed from its books – going from well over $1.6 billion to around $480 million.

PLANB’S STOCK-TO-FLOW MODEL

The Stock-to-Flow (S/F) Ratio is a popular model that assumes that scarcity drives value. Stock-to-Flow is defined as the ratio of the current stock of a commodity (i.e. circulating Bitcoin supply) and the flow of new production (i.e. newly mined Bitcoins).

Bitcoin’s price has historically followed the S/F Ratio and therefore it is a model that can be used to predict future Bitcoin valuations. This metric was first coined by PlanB.

Stock-To-Flow Model | Source: Glassnode

Now, this is one analysis that can breathe some life into investors looking at losses on their books. After understanding the definition mentioned above, it is quite clear that Bitcoin’s current valuations are running well below the model’s prediction, and is thus due for a major recovery.

CONCLUSION