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Blockchain Indicator Suggests Bitcoin Could Be Close to Bottoming Out
Bitcoin looks undervalued relative to the annualized dollar value of coin dormancy.
Updated May 11, 2023, 4:39 p.m. Published Jan 12, 2022, 7:23 a.m.
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A historically reliable blockchain indicator suggests bitcoin may be in the final stages of a bearish trend, having lost nearly 40% of its value in the past two months.
- The entity-adjusted dormancy flow, a ratio of cryptocurrency's going market value to the annualized dollar value of coin dormancy, has dropped below $250,000. Dormancy refers to the average number of days each coin transacted remained dormant or unmoved, a gauge of market's spending pattern.
- The area under $250,000 has marked major price bottoms in the past, as seen in the featured image provided by data analytics firm Glassnode.
- "Entity-adjusted dormancy flow recently bottomed out, showing a full reset of the metric. These events historically print at the cyclical bottom," Glassnode said in a report published on Monday.
- "Low dormancy flow values indicate moments where market cap is undervalued relative to the yearly sum of realized dormancy, indicating moments where bitcoin is a value price," Glassnode added.
- Market capitalization is calculated by multiplying the total number of coins mined by the price of a single coin at any given time. At press time, bitcoin's market capitalization was $809.98 billion.
- Bitcoin bottomed out in July 2021 and began a new bull run with the metric falling into the green zone. The cryptocurrency hit record highs near $69,000 on Nov. 10.
- While the indicator has flipped bullish again, macro factors can play spoilsport. The U.S. December consumer price index scheduled for release at 13:30 UTC may inject volatility into the market. A higher-than-expected reading of 7.1% may spur bets of faster tightening by the U.S. Federal Reserve and put fresh selling pressure on bitcoin.
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