Bitcoin has recently shown signs of being significantly undervalued as substantial capital outflows accompany its sharp decline below $75,000. Historical data now suggests a potential for a 10% rebound in the near term.
On Monday, Bitcoin's price dropped to a year-to-date low of $74,555, reflecting a 40% decrease from its peak. This downturn was paralleled by $1.3 billion in net outflows from global Bitcoin exchange-traded products (ETPs) over the past week. The decline was marked by a strong bearish sentiment and low valuation metrics, yet analysts hint at a possible asymmetric trade opportunity on the horizon.
Key insights include Bitcoin's two-year rolling Market-Value-to-Realized-Value (MVRV) z-score, which has hit a historic low, indicating extreme undervaluation. Last week, global Bitcoin ETPs experienced $1.35 billion in net outflows, primarily driven by $1.49 billion from US spot exchange-traded funds (ETFs). Bitcoin’s daily Relative Strength Index (RSI) fell into the 20 to 25 range, a zone that has historically been followed by a 10% rebound since August 2023.
Bitwise's Weekly Crypto Market Compass report highlights the 'fire-sale' valuations for Bitcoin, with its MVRV z-score reaching unprecedented lows. This metric assesses how much Bitcoin’s market value diverges from the total cost basis of investors, adjusted for historical volatility. Additionally, Bitwise’s Cryptoasset Sentiment Index fell to levels last observed during the October 2023 market crash, with only 2 out of 15 indicators remaining above their short-term trends.
The capital outflows underscore the bearish sentiment, with global crypto ETPs recording $1.73 billion in net outflows last week, following $1.81 billion the previous week. Notably, Bitcoin products accounted for $1.35 billion of this, with significant withdrawals from the Grayscale Bitcoin Trust and the iShares Bitcoin Trust, amounting to $119 million and $947 million, respectively.
Bitcoin seems poised for a short-term recovery after reaching a local low near $74,500. The daily RSI dropped into the 20 to 25 range, a pattern that has historically preceded a 10% price rebound since August 2023, with the exception of June 2024. Current data supports the possibility of a rebound, with the spot cumulative volume delta (CVD) on Binance and Coinbase turning positive as Bitcoin prices climbed toward $79,300. This increase in spot CVD indicates net aggressive buying, while stable open interest and negative aggregated funding rates suggest the movement is driven by spot demand rather than leveraged longs, lowering immediate liquidation risks.
Last week, Bitcoin long liquidations amounted to over $1.8 billion, aligning with the view that liquidity is now skewed towards the upside. Over $3 billion in cumulative short positions are at risk of liquidation if prices near $85,000. Crypto trader 'exitpump' noted a bullish spot CVD divergence across major exchanges, reinforcing this setup.