Over the past few months, bitcoin and the broader cryptocurrency market have been underperforming. With more retail investors leaving the market, uncertain macroeconomic conditions and boring sideways price action, it’s clear that the hype has certainly fluctuated since late 2021.
Despite this, several fundamental metrics suggest that Bitcoin could be in a huge accumulation zone. This data may indicate that the market may be on the verge of capitulation, indicating a strong buying zone for long-term investors.
BTC is in the accumulation stage
The accumulation phase refers to the period of consolidation that follows a downtrend but precedes an uptrend. In theory, the market takes some time to get rid of all the sellers and weak hands – and this phase can take weeks and months to complete. Historically, a prolonged period of consolidation often means that the market bottom is likely to be at
Speaking of long contracts and whales, the average amount of bitcoin sent to derivative exchanges is steadily increasing as shown in the chart below. In most cases when these wallets transfer funds to derivative exchanges, they accumulate large amounts of bitcoin, which leads to higher prices in the future.
Average Bitcoin Flows to Derivative Exchanges:
Source – DeFire Academy
This positive sign means that the whales are in long positions, and the market is still in an accumulation range even though the price of BTC was higher than a few weeks ago. Interestingly, the average flow of bitcoin to the value of derivative exchanges is close to a previous high last seen when the crypto market reversed into the 2021 bear market.
MACD Wave Traded Buy and Sell Ratio:
Source – DeFire Academy
On the overall time frame, the overbought ratio is also indicating a significant build-up area. Specifically, the MACD wave (in blue), which represents the ratio of the buy-sell, is in the range where the buying is dominant. The last time the buy-sell ratio was in the buy zone was during the 2021 bear market, which in hindsight provided exceptional returns to investors.
As a result, it is reasonable to assume that smart money is buying back the current dip in anticipation of higher prices in the near future. Disciplined dollar investors may cost the average of these dips to take advantage of the prices. However, it is important to note that more downside is still acceptable.
When should you start buying?
Patience is pivotal when waiting for the perfect entry through the build-up zone. The figure below shows the percentage of BTC holders in losses and profits at different stages in the market.
Bitcoin Profit and Loss Ratios:
In general, a good area to buy BTC and altcoins is when the loss ratio increases to previous highs. Historically, the closer you are to it, the greater the chance that your purchase will be profitable in the long run. This strategy is based on the principle of buying when others are irrationally afraid and taking advantage of the reduced prices of BTC and other altcoins.
Cautious investors may wait for a loss ratio of 35% to 40%. However, it is important to note that these levels will not necessarily be reached before Bitcoin and the broader cryptocurrency market enters the next bullish rally.
Crypto market forecast
In general, it is important to recognize that cryptocurrencies are inherently risky. Negative macroeconomic events affecting the broader crypto market and the technology sector in the United States may exacerbate the current bear market for cryptocurrencies.
While many investors hope that the cryptocurrency market will reverse in the near future, the harsh reality is that at the moment, the cryptocurrency industry lacks the fuel to deliver a quick reversal. In the meantime, it may be appropriate for the dollar to cost average dips if you believe in the long-term value of bitcoin.