Bitcoin plummeted below $30,000 for the first time in six months, only to rebound to the $34,000 trading zone. The decline in Bitcoin’s price came as a result of China’s intense crackdown on cryptocurrencies and cryptocurrency mining.
What caused the decline
The intense regulatory crackdown by Chinese authorities caused a lot of FUD (Fear Uncertainty and Doubt) in the market and led to a decline in Bitcoin’s hashrate. Two-thirds of bitcoin mining happens in China. Consequently, the crackdown on mining led to the decline in hashrate.
Images circulating social media of mining rigs being shut down in China also fuelled the selloff in the market.
The “Death Cross” FUD, which is where the 50 Exponential Moving Average (EMA) and the 200 EMA crosses, which indicates a bearish trend for technical analysis traders, contributed to the decline as well.
What is on-chain analytics saying?
On-chain analytics data is indicating that investors are accumulating more Bitcoin as prices are going down. This is a very strong bullish indicator for a potential Bitcoin market rally.
The liquid supply ratio shows the rotation of BTC from weak to strong hands. There is a clear bullish divergence in the ratio, with a lower low made in price and a higher high in the ratio. This means strong hands are increasingly buying as the price is going down.
Another metric to consider is the Spent Output Profit Ratio (SOPR). The SOPR measures profit held by coins trading on each given day. The SOPR indicates a bullish divergence which means there is a higher high in the ratio while there is a lower low in price. The last time the bullish divergence was this clear was in late January when the price went on a strong rally.
A non, on-chain metric, Bitfinex whales that had opened a massive short position have almost entirely covered. One can see this as bullish but potentially also neutral to bearish as these shorts can no longer be squeezed.
The on-chain metrics analysed show strong bullish indications for Bitcoin in the long term.
Investors are advised to apply dollar-cost averaging when it comes to investing in cryptocurrencies as the market is known for its wild volatility. You can read our previous articles about dollar-cost averaging here and here.
Investors are also advised to avoid futures trading as the volatility can get short term traders liquidated.
Bitcoin was trading at $34,100, up 7.60% for the day, at the time of writing this report.