Bitcoin has been trading sideways for the past few weeks. It is still consolidating between the $36,000 and $45,000 levels, closing long and short positions several times.
Given the current economic and geopolitical uncertainty, it is wise to consider the worst-case scenario and plan for it.
Daily K-line chart.
On March 7, BTC bounced off the lower end of the range and broke above its 50-day SMA. The following day, it regained momentum to retest and close below its 50-day SMA.
Today, Bitcoin tested this dynamic resistance again, but has so far failed to break it out to the upside. However, if the price succeeds, the next significant resistance line will be the 100-day SMA, which was only tested once in early December last year.
Above the 100-day moving average, there is the higher boundary of the range, the $45,000 area. It has rejected the price four times since the beginning of 2022. On the other hand, if BTC fails to break the 50-day moving average, then all eyes will be centered on the $36,000 support area to see if it can push the price higher for another go.
Source: TradingView 4-hour chart.
In the 4-hour timeframe, it is clear that BTC is still consolidating in a bearish flag pattern, failing to reach either trendline for the third time. This structure confirms the continuation of the bearish scenario, which will only be overturned by a bullish breakout from the top trendline. Furthermore, the RSI is currently showing a balance of power between shorts and longs as it sits at the 50% mark, trying to break out again.
Source: TradingViewOnchain Analytics
Bitcoin Capitalization Model
Given the current global economic and geopolitical uncertainty, it is wise to consider the worst case scenario and plan for it. The chart below contains different models of Bitcoin capitalization, such as market cap (black) and its 200-day moving average (yellow), realized cap (green) and Delta cap (blue).
Historically, the 200 DMA has been a reliable support in bull markets and a strong resistance in bear markets. Therefore, the area above it is usually considered a bull market. Realized Cap has also been a reliable support in the first phase of bear markets. However, it tends to break down when it finally capitulates and when the market returns above it, the bull market (or mini-bull market) begins.
Finally, Delta Cap marks the absolute bottom of the last two bear markets with high precision. Considering these facts and what the K-line chart shows, it is clear that the area between Delta Cap and Realized Cap has been the best buy area for the last eight years. Currently, this price range is $17K-$24K.
It appears that the amount of time spent and the percentage of retracements below the realized cap have been decreasing each cycle. This continued decrease can be explained by the growing popularity of Bitcoin, especially among institutional investors. Over time, more and more people are seeing the value of bitcoin and are eager to allocate a portion of their portfolio to it when "digital gold" looks cheap. These capitalization models will help determine if Bitcoin is undervalued or in a bubble.
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Disclaimer: The information found on CryptoPotato is a quote from the author. It does not represent CryptoPotato's opinion on whether to buy, sell or hold any investments. You are advised to conduct your own research before making any investment decisions. Use of the information provided is at your own risk. For more information, please refer to the disclaimer.
TradingView's cryptocurrency K-line chart.