Is Bitcoin Undervalued Now? Expert Decodes The Market State

On Saturday, Bitcoin made a strong rally, climbing above $58,250. Despite this rally, it could not sustain the momentum and closed above the 200-day exponential moving average (EMA). This led to the formation of a bearish candlestick pattern on Sunday, signaling potential downward momentum. Currently, Bitcoin is trading below $56,000, which is a critical juncture from a technical analysis and market sentiment perspective.

Sina G, COO and co-founder of 21st Capital, said: offered We provide a breakdown of the factors influencing Bitcoin’s price trajectory today, focusing in particular on the recent decline and assessing its undervalued status with sophisticated metrics. Starting with a historical overview, Sina noted that Bitcoin has plummeted 26% from its March peak of $73,000, settling around $56,000 in recent weeks.

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The sharp decline was attributed to several macroeconomic and sector-specific factors. He said Bitcoin’s drop from a March peak of $73,000 to $56,000 is consistent with historical bull market corrections, which often see large, temporary price pullbacks.

The impact of Bitcoin ETFs has been extremely significant. Initially, these ETFs contributed significantly to the price surge from $16,000 to $73,000 as investors eagerly embraced the rumor and news buying strategy. “ETF flows were very strong until mid-March, driving the market higher. Then ETFs slowed down and bankruptcy outflows became dominant, causing a weak price movement down to $56,000.

A notable recent impact on Bitcoin prices has been the German government’s sell-off, which liquidated Bitcoin seized from pirate content platform Movie2k.to in 2013. “The government’s decision to liquidate around 10,000 coins in three transactions coincided with a significant price drop on certain dates in June and July,” he noted. The sell-off was exacerbated by a large influx of Bitcoin into the market, leading to a 24% plunge in June and July.

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Is Bitcoin Undervalued?

When asked if Bitcoin is currently undervalued, Sina turned to the Volatility Adjusted Price Level Index (VPLI), a proprietary metric developed by 21st Capital. “Currently, our VPLI is at -3.57, indicating that Bitcoin is significantly below its fair value,” Sina said. He went on to explain that historically, a VPLI score of -10 corresponds to the bottom of a bear market, and that the current reading suggests Bitcoin is potentially undervalued.

Volatility-adjusted power index | Source: X @Sina_21st

“This puts Bitcoin in the 41st percentile of value, meaning Bitcoin has only fallen below this VPLI value 41% of the time (most of which were during bear markets), so it has a good balance between risk and reward,” he added.

Sina highlighted two important short-term indicators that could drive Bitcoin price movements going forward: the continued sale of Bitcoin by the German government and the movement of the perpetual swap funding rate. “Recently, the funding rate has been negative, which is typically a bearish signal. This suggests that many traders are taking short positions in anticipation of further declines, which paradoxically could indicate that the market is nearing a bottom,” he concluded.

At the time of writing, BTC is trading at $55,835.

Bitcoin Price
BTC Drops Below $56,000 Again, 1-Day Chart | Source: BTCUSD on TradingView.com

Featured image created by DALL·E and charts taken from TradingView.com

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