‘Deadly Red Candle’ Engulfs Bitcoin: Here’s Why Price Fall Could Continue

Key Insights:

• The bitcoin price closed with its 10th red candle in eleven weeks.
• Bitcoin’s RSI ‘has never been more oversold on the weekly time frame than now.’
• Despite the many macro valuation metrics continuing to flag oversold conditions, bitcoin price remained correlated with traditional markets. 

Bitcoin and digital assets have experienced yet another chaotic week of price losses. BTC’s price, after losing the open of $31,693 and trading down to a new multi-year low of close to $20,800.

In the larger financial landscape, macro headwinds remain a large-scale driver, with the latest US CPI print of 8.6% is higher than expected and another 2year-10year US Treasury Bond yield curve inversion occurring in the early hours on Monday.

BTC Highly Oversold

As bitcoin price closed with its 10th red candle in 11 weeks, the top cryptocurrency’s price hit as low as $20,816 on Bitstamp. The $20,816 mark is the lowest BTC’s price has gone since the week of December 2020.

Market analysts like Michaël van de Poppe said the recent BTC price candle was a ‘deadly red candle.’

Deadly red candle, deadly green candle.

— Michaël van de Poppe (@CryptoMichNL) June 13, 2022

The S&P 500 was down on the daily chart by nearly 3.9%. In comparison, the Nasdaq Composite Index lost 4.7% ahead of critical comments from the US Federal Reserve on its anti-inflation policy.

Notably, a larger market sell-off that triggered before the weekend paced after Monday’s Wall Street opening bell as BTC and other digital assets fell in tandem with United States equities.

Even though the larger financial landscape looked bearish, the worst effect was seen on top crypto assets. At the time of writing, while bitcoin’s price had stabilized at the $22,449 mark, it was still down by 24.95% (close to 25%) on the weekly chart.

Renowned crypto trader and analyst Crypto Rover pointed out on Twitter that bitcoin ‘has never been more oversold on the weekly time frame than now.’

That said, looking at bitcoin’s daily RSI, it was evident that the metric saw a freefall from June 7 to June 14, trading in an extremely oversold zone. A major fall in RSI indicates selling pressure taking over the market.

Trading firm QCP Capital noted that the BTCUSD pair was ‘uncomfortably close’ to falling below the $20,000 mark, representing the all-time high from its previous halving cycle, which had never happened before.

Is the BTC Bottom In?

Glassnode’s weekly report highlighted on Monday that throughout last week, bitcoin network utility continued to languish, with macro metrics like the RVT entering the uncharted bearish territory.

Even though, until Monday, there was a continued accumulation across Shrimps (< 1BTC) and Whales (> 10K BTC) alike, price support was far from established. Additionally, despite the many macro valuation metrics continuing to flag oversold conditions, bitcoin price remained correlated with traditional markets, as BTC price and market cap continued to take a beating.

Moreover, the Glassnode report said that the market was ‘entering a phase-aligned with the deepest and darkest phases of previous bears.’ Notably, the market, on average, is barely above its cost basis, and even long-term holders were now realizing losses.

Looking at the liveliness metric for BTC, it could be noted that the indicator has been in a structural downtrend since August 21. Liveliness helps understand the market preference for HODLing or distributional behavior by defining the balance between aggregate Coin Day Destruction and Coin Day Creation.

Looking at BTC, it could be said that it was firmly within a regime of aggregate Coin Day Creation as HODLing dominates. However, with only the HODLer class remaining, their demand-side remains too light to contain the current action sell-side.

There Could Be More Price Downside

Despite BTC’s price stabilizing near the $22,000 price range, many in the market anticipated further price fall for the top asset. CryptoQuant analysts highlighted that the ‘price reduction is not over yet’ looking at the SOPR metric for BTC.

The SOPR (Spent Output Profit Ratio) indicator provides insight into macro market sentiment, profitability, and losses taken over a particular time frame. It reflects the degree of realized profit for all coins moved on-chain.

SOPR value less than 1 implies that the coins moved that day are, on average, selling at a loss or that the price sold is less than the price paid. Notably, a comparison of SOPR metrics with previous bottoms shows that the values are more than previous bottoms. This could be a signal that prices may fall further.