Cryptocurrency News

Bitcoin Enters Oversold Territory as Key Market Signals Return to Their Green Zone

By January 24, 2022 No Comments

Key takeaways:

  • Dynamic NVT and RSI market signals are indicating Bitcoin is trading in the oversold area
  • The last time NVT and RSI were this low in the last two years, Bitcoin rebounded to its ATH – the first time post coronavirus crash in March 2020 and the second time after China banned crypto
  • Bitcoin is currently trading 50% removed from its ATH set roughly two months ago

The last week in crypto could be described as nothing less than a bloodbath. The price of Bitcoin and virtually all digital assets decreased by double digits as the total crypto market cap dropped to $1.62 trillion – the lowest value in six months. According to Bitcoin’s network value to transaction (NVT) and relative strength index (RSI) signals, we might have already entered the so-called “value zone,” meaning the price bottom has been reached.

Crypto analyst Charles Edwards thinks Bitcoin might experience a swift trend reversal

Charles Edwards, the founder of cryptocurrency fund Capriole Investments, tweeted the most recent Bitcoin NVT data earlier today, which suggests “we have entered the value zone.” Blockchain analyst Willy Woo originally developed NVT in collaboration with renowned entrepreneur Dmitry Kalichkin. The duo combined the ratio between BTC’s market cap and its daily transaction volume to track the correlation between the BTC network’s activity and its market price. NVT provides insightful market data and is an excellent metric to determine whether Bitcoin is overbought or oversold.

NVT was later further tweaked by Edwards, who added deviation bands to the signal in pursuit of a metric that better accounts for Bitcoin’s natural evolutionary changes – and so the “dynamic range NVT” was born. 

Dynamic range NVT shifted into the green zone within the last 24 hours, suggesting that the world’s largest digital currency has entered the “oversold” area. The indicator has previously turned green only two times in the last two years – at the onset of the coronavirus pandemic in March 2020 and as a result of China’s cryptocurrency ban during the summer of 2021.

Bitcoin is currently changing hands a little over 50% removed from its November ATH of $68,770, which means that BTC has lost more than half of its value in the span of roughly two months. Scot Melker, a crypto trader and investor with nearly 800k followers on Twitter, was quick to point out that this is far from the worst drop BTC has experienced over the years – in May 2021, for instance, the price of BTC halved from $60,000 to $30,000 in the span of 10 days. Although that drop might seem like ancient history, the sharp decline happened just eight months ago. Melker reminded his followers that May’s crash was far more severe and concluded by saying: “We’ve been before.”

RSI drops to historically low levels, suggesting BTC is as oversold as it has ever been

Bitcoin’s daily relative strength index (RSI) is another market instrument that is used to evaluate whether an asset is trading in overbought or oversold conditions. Bitcoin daily RSI is currently at its lowest level since March 2020, when investors sold their holdings en masse in fear of what the full ramifications of the Covid-19 pandemic might entail.

Blockchain technical analyst Matthew Hyland pointed out that the current RSI value might be indicative of a good buying opportunity. In his Sunday’s tweet, Hyland noted that Bitcoin Monhty RSI is “approaching levels that have been historically some of the best buying opportunities in its entire history.”

It remains to be seen how long it takes before Bitcoin reverses the current bearish market trend and starts mounting a comeback. Given its six-month low price and key market signals indicating Bitcoin is trading in an oversold area, it might be an opportune time to buy the dip.