Bitcoin continues to look oversold, just as it has for quite some time. However, holding behavior and network fundamentals look much stronger than its price suggests, so many investors remain bullish despite its inability to break firmly out of its recent range.
Bitcoin Remains Range-Bound
In their “Bitcoin Monthly” report, the ARK Invest team studied bitcoin’s on-chain fundamentals and other factors that are driving the cryptocurrency’s price. They pointed to several indicators that show bitcoin is oversold.
For example, the ARK team pointed out that bitcoin is still trading between its 200-week moving average at $23,500, which has served as the resistance level, and the investor cost basis at $19,000, which has served as the support. ARK Invest calculates the investor cost basis by subtracting the miner cost basis from the market cost basis.
Calculating the investor cost basis this way removes miners' activity from the network's total aggregate cost basis, turning the focus on investors' entry points. The ARK team explained that as strong holder behavior pushes back against a weak macroeconomic environment to either side, it will play a significant role in the short-to-mid-term performance of bitcoin.
These view these indicators as neutral for bitcoin.
Crossing For Short-Term And Long-Term Cost Basis
On the other hand, ARK Invest pointed to another indicator as bullish. They reported that the cost basis for short-term holders recently crossed below the cost basis for long-term holders. In fact, this cross occurred for the first time since late 2018, which is just one reason ARK finds it to be so bullish for bitcoin.
The firm explained that this crossing of the cost basis for short-term holders below the cost basis for long-term holders typically correlates with market bottoms paired with high conviction levels. The ARK Invest team believes that this crossing signals low speculative excesses.
In other words, it suggests either capitulation among short-term holders or that short-term holders are continuing to hold their bitcoin for so long that they are becoming long-term holders.
The ARK team also called attention to another signal they find bullish. Bitcoin has now recorded four months of net losses. As a result, they believe the cryptocurrency's net realized profit or loss suggests capitulation proportional to past cycle bottoms.
The ARK Invest team called attention to the possibility of continued selling amid macroeconomic uncertainty and the correlation-to-one among risk-on assets such as bitcoin. They added that despite those conditions, the cryptocurrency's net realized profit loss ratio suggests the market has finished its cyclical capitulation.
Further, the ARK team emphasized that this ratio suggests bitcoin is seeing significant levels of capitulation in both duration and deviation.
Watching The Profitability Delta
In another bullish signal, they also called attention to bitcoin's profitability delta, which is close to zero, adding that this condition suggests the cryptocurrency is oversold. The ARK Invest team pointed out that this marks the first time bitcoin's profitability delta has been close to zero since its collapse in 2020 around the COVID-19 pandemic.
They defined profitability delta as bitcoin's "percent supply in profit (unrealized activity) minus bitcoin's percent volume in profit (realized activity)." The ARK team explained that when the cryptocurrency's profitability delta reaches zero or below, they see that its unrealized profitability matches its realized profitability on a one-to-one basis.
Such a condition suggests that most of the current trading activity is seller-exhausted.
Record-High Supply Among Long-Term Holders
The ARK Invest team drew attention to another signal pertaining to the supply among long-term holders, which they said is at record highs. Meanwhile, the number of quarterly coindays destroyed has reached its lowest level in 12 years.
They explained that both indicators are historically significant because they suggest extremely high holding behavior in the bitcoin market. Of course, this situation is also bullish for bitcoin, according to ARK Invest.
They explained that long-term-holder supply denotes the number of coins held for at least 155 days. This threshold is statistically meaningful because it assigns a probability that a coin remains held past 155 days increases significantly.
The coindays destroyed displays bitcoin's time-weighted turnover by multiplying the volume transacted by the number of days each coin was held. According to ARK Invest, high values on this indicator are bearish, while low values are neutral to bullish.
Bitcoin's Hash Rate
Finally, ARK Invest pointed to another indicator that's flashing bullish amid bitcoin's oversold condition. According to the firm, bitcoin's hash rate trend suggests miners are no longer in capitulation mode. Miners started capitulating in June, but the ARK team believes this capitulation is finally complete. Historically, this dynamic has correlated with a high-conviction bullish environment.
They explained that bitcoin's hashing trend, also referred to as hash ribbons, compares to the cryptocurrency's 30-day moving average and 60-day moving average. Looking at this indicator allows investors to assess when the mining industry is entering or exiting major periods of compression.
According to the ARK Invest team, the recent compression occurred between early June and late August. During that period, bitcoin's hash rate expanded, reaching record highs in the process.
What do you think about bitcoin's oversold condition? Share your thoughts in the comments section below.