Bitcoin started Friday, August 16, trading below $57,000, after a surprise 7% drop on Thursday. While the leading cryptocurrency is showing good signs of recovery, a prominent crypto analyst explained how the recent price drop may have pushed Bitcoin into a bearish phase.
Bitcoin Price MVRV Drops Below 1-Year Simple Moving Average – Will It Impact Price?
In a post on the X platform, popular cryptocurrency analyst Ali Martinez said: subscriber Bitcoin price has seen a turnaround in its cycle after the recent price drop. This on-chain revelation is based on Glassnode’s MVRV (Market Cap to Realized Value) Momentum indicator, which serves as a tool to identify overall market trends.
The MVRV momentum indicator is primarily composed of the MVRV ratio and the 1-year simple moving average (SMA). When the MVRV indicator breaks above this simple moving average, it signals a transition into a bullish market. Meanwhile, a break below the 1-year simple moving average signals a transition into a bearish phase.
Typically, a strong break above the 1-year moving average MVRV indicates that large amounts of Bitcoin were purchased at a lower price than the current price, indicating that Bitcoin holders are now in profit. Conversely, when there is a strong break below the moving average, it indicates that large amounts of Bitcoin were purchased at a higher price than the current price, with Bitcoin holders in the red.
A chart showing the Bitcoin price and the MVRV momentum indicator | Source: Ali_charts/X
According to Martinez, the Bitcoin cycle has moved into a bearish phase after the price of Bitcoin dropped below $61,500. This recent big break of the MVRV ratio below the SMA shows that a large amount of Bitcoin was bought above $61,500. However, the coins are now in a loss, which could lead to a large distribution by investors looking to cut their losses.
When a large number of investors are in the red, it increases selling pressure, which can add downward pressure to the Bitcoin price. Ultimately, this can lead to a situation where falling prices lead to more asset disposals, thus strengthening the momentum of the bearish phase.
Bitcoin Price at a Glance
At the time of writing, Bitcoin is still hovering around $59,000, reflecting a 2.5% increase over the past 24 hours. However, the leading cryptocurrency is down about 3% on the weekly timeframe, according to data from CoinGecko.
The price of Bitcoin hovers around the $59,000 level on the daily timeframe | Source: BTCUSDT chart on TradingView
Featured image by iStock, chart by TradingView