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

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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.