Based on several market signals, Bitcoin (BTC) may now be in the process of bottoming after a 25% rise.
BTC price has rallied around 25% after dropping to the $17,500 region on June 18. The rally came after the market corrected 75% from its November 2021 high at $69,000.
However, the recovery looks rather modest and carries with it the risk of further downside due to macroeconomic trends and the collapse of many well-known crypto companies such as Three Arrows Capital, Terra.
But a number of widely-followed indicators suggest a different scenario, that Bitcoin’s downside prospects relative to current prices are slim.
Weekly RSI is in oversold territory
The first indication of Bitcoin’s macro bottom came from its weekly relative strength index (RSI).
Notably, BTC’s weekly RSI has fallen into the “oversold” zone after falling below 30 for the week of June 13. This is the first time the RSI has slipped into the oversold zone since December 2018. It was also the month that Bitcoin ended its bear market and rallied more than 340% in the following 6 months, hitting $14,000 in June 2019.
In another instance, Bitcoin’s weekly RSI dropped to 30 starting on March 9, 2020. That also coincided with BTC price bottoming below $4,000 and then rallying to $69,000 in November 2021.
Bitcoin price has similarly recovered since June 18, opening the possibility of a repeat of historical parabolic rallies, after the RSI signal fell into the over-half zone.
Bitcoin NUPL rises above 0
Another indication of Bitcoin’s potential macro bottom comes from its unrealized profit and loss (NUPL) indicator.
NUPL is expressed as a ratio, where a level above zero means investors are making a profit. The higher this number, the more profitable the investor.
On July 21, Bitcoin NUPL surged above zero as the price hovered around $22,000. In the past, this shift has been followed by massive price rallies.
The third sign of Bitcoin forming a macro bottom comes from another on-chain indicator called the Puell Multiple.
Puell Multiple examines mining profitability and its impact on market prices, by measuring the daily coin release rate (in USD) and its 365 moving average.
The strong Puell Multiple indicator shows high mining profitability relative to the yearly average, suggesting that miners are likely to liquidate their reserves to maximize revenue. As a result, the Puell Multiple indicator’s highs often coincide with the macro tops of the market.
Conversely, a lower Puell Multiple means that the current profitability of miners is lower than the yearly average.
As a result, miners with break-even or sub-zero revenue from Bitcoin mining are at risk of shutting down, giving up market share to more competitive companies. In the past, removing weaker miners from the Bitcoin network has helped reduce selling pressure.
Interestingly, the Puell Multiple value as of July 25 is in the blue zone and is similar to the levels observed during the March 2020 crash, 2018 and 2015 price bottoms.