Over the past few months, Bitcoin and the broader cryptocurrency market have underperformed. With an increasing number of retail investors exiting the market, uncertain macro conditions and annoying sideways price action, it’s clear that the hype has definitely waned since the end of 2021.
Despite this, several fundamental metrics indicate that Bitcoin could be in a zone of massive accumulation. This data could suggest that the market may be close to capitulation, signaling a strong buy zone for long-term investors.
An accumulation phase refers to a period of consolidation that follows a downtrend but precedes an uptrend. In theory, it takes a while for the market to shake off all the sellers and weak hands –– this phase can take weeks and months. Historically speaking, a longer period of consolidation often means that it is more likely that the bottom of the market will be reached.
Speaking of longs and whales, the average amount of BTC sent to derivatives exchanges has steadily increased, as seen in the chart below. In most cases, when these wallets transfer funds to derivatives exchanges, they accumulate large amounts of BTC, leading to future price spikes down the line.
Average BTC inflows to derivatives exchanges:
Source – DeFire Academy
This positive sign means that the whales are long and the market is still in an accumulation range despite the price of BTC being higher than a few weeks ago. Interestingly, average BTC inflows to the value of derivatives exchanges are approaching a prior high last seen when the crypto market reversed in the 2021 bear market.
The Taker Buy Sell-Ratio as a MACD wave:
Source – DeFire Academy
On a macro timescale, the taker buy sell ratio also indicates a large area of accumulation. Namely, the MACD wave (blue), which represents the bid-to-sell ratio, is within the range where buying prevails. The last time the bid-to-sell ratio was in a buy zone was during the 2021 bear market, which in hindsight provided exceptional returns for investors.
As a result, it is reasonable to assume that smart money is again buying the current decline anticipating a price rise in the near future. Disciplined investors can cost the average of these declines in dollars to take advantage of prices; however, it is important to note that further decline is still plausible.
When should you start buying?
Patience is essential while waiting for the ideal entry into an accumulation zone. The figure below highlights the percentage of profit and loss BTC holders at different market stages.
BTC profit and loss percentages:
Generally speaking, a good place to buy BTC and altcoins is when the loss percentage increases to previous highs. Historically, the closer it is, the more likely your purchase will be profitable in the long run. This strategy is based on the principle of buying when others are irrationally fearful and taking advantage of undervalued prices for BTC and other altcoins.
Cautious investors can expect the percentage loss to reach 35% to 40%; however, it is important to note that such levels will not necessarily be reached before Bitcoin and the broader cryptocurrency market enter the next bullish rally.
Crypto Market Outlook
Overall, it is important to recognize that cryptocurrencies are inherently risky. Negative macroeconomic events that impact the broader crypto market and the US tech sector may exacerbate the current crypto bear market.
While many investors are hoping for the crypto market to reverse in the near future, the harsh truth is that right now the crypto industry is running out of fuel to perform a quick reversal. In the meantime, it may be appropriate to average the dollar cost of declines if you believe in the long-term value of Bitcoin.
cnbctv18-forexlive-benzinga