On Saturday, Bitcoin saw a strong rally, climbing above $58,250. Despite this upward move, it was unable to maintain its momentum and close above the 200-day exponential moving average (EMA). This led to the formation of a bearish engulfing candlestick pattern on Sunday, signaling potential bearish momentum. Currently, Bitcoin is trading below $56,000, which positions it at a critical juncture in terms of technical analysis and market sentiment.
Sina G, COO and co-founder of 21st Capital, provided An analysis of the factors influencing Bitcoin’s price trajectory today, including highlighting recent declines and assessing its undervaluation status using sophisticated metrics. Starting with a historical overview, Sina pointed out that Bitcoin has seen a drastic 26% decline from a peak of $73,000 in March, settling around $56,000 in recent weeks.
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The sharp decline has been attributed to several macroeconomic and sectoral factors. According to him, Bitcoin’s fall from its March high of $73,000 to $56,000 aligns with Historical Bull Market Correctionswhich often experience significant but temporary retracements.
The influence of Bitcoin ETFs has been decisive. Initially, these ETFs contributed significantly to the price rise from $16,000 to $73,000, as investors heavily engaged in a strategy of buying rumors and buying news. “Until mid-March, ETF flows were very strong and the market was moving higher. Since then, ETFs slow down and capital outflows due to bankruptcies took over, causing weak price action down to $56,000.
One notable recent impact on Bitcoin’s price has been the German government’s selling activity, which liquidated bitcoins seized in 2013 from the pirated content platform Movie2k.to. “The government’s decision to liquidate approximately 10,000 coins in three transactions directly coincided with significant price declines on specific dates in June and July,” he noted. This massive selloff contributed to a sharp 24% drop in June and July, exacerbated by the sheer volume of bitcoins entering the market.
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Is Bitcoin Undervalued?
To determine whether Bitcoin is currently undervalued, Sina turned to the Volatility-Adjusted Price Level Index (VPLI), a proprietary metric developed by 21st Capital. “Currently, our VPLI is at -3.57, indicating that Bitcoin is significantly below its fair price,” Sina said. He further clarified that historically, a VPLI score of -10 corresponds to bear market lows, putting the current reading into a context that suggests Bitcoin is potentially undervalued.
“This puts us in the 41st percentile of values – meaning Bitcoin has spent only 41% less than this VPLI figure (mostly during bear markets). So the risk-reward balance is favorable,” he added.
Looking ahead, Sina highlighted two critical short-term indicators that could dictate immediate Bitcoin price movements: continued Bitcoin growth sales by the German government and the behavior of the funding rate of perpetual swaps. “Recently, the funding rate has been negative, which is usually a bearish signal. This suggests that many traders are taking short positions, anticipating further declines, which paradoxically could indicate that the market is close to reaching a bottom,” he concluded.
At press time, BTC was trading at $55,835.
Featured image created with DALL·E, chart by TradingView.com
