A key metric that measures momentum in the Bitcoin price just fell to its weakest level since March.
Last week, Bitcoin’s Z-score to its 200-Day Moving Average fell under 1.0, where it has remained more or less ever since.
That means that the current Bitcoin price is only just under one standard deviation above its average daily closing price over the past 200 days.
This time last month, a few days after Bitcoin had printed its highs for the year above $31,000, Bitcoin’s Z-score to its 200DMA was 2.27.
Bitcoin’s loss of price momentum over the last few weeks comes as traders book profit in wake of this year’s impressive rally and temper their optimism about how much further Bitcoin might rally over the remainder of the year amid a continued cloud of uncertainty regarding the US crypto regulation outlook and how much, if at all, the Fed will cut interest rates in the second half of the year.
Arguably, high Bitcoin transaction fees amid a surge in block space demand as the new BRC-20 standard of crypto tokens issued directly on-chain gains in popularity has also been weighing on the price.
It has certainly acted as a deterrent for the blockchain’s more traditional usage as a digital currency ledger – active daily users and the number of new addresses interacting with the blockchain on a daily basis have both fallen off a cliff in recent weeks, though daily transactions has surged to record highs.
Is Now a Good Time to Buy?
While it by no means guarantees that the Bitcoin price doesn’t have further to fall in the short-run, a Z-score to the 200DMA of around of just under one has often been a good time to buy Bitcoin, if the cryptocurrency is deemed to be in the early of middle stages of a bull run.
Take the 2015 to 2018 bull run, for example.
The line that marks a Bitcoin price of one standard deviation above the 200DMA seemingly acted as a strong level of for multiple years.
While this wasn’t so much the case in 2019 and early 2020 as Bitcoin recovered from its 2018 bear market, it did seem to be the case in late-2020 as the Bitcoin bull market went into overdrive thanks to massive fiscal and monetary stimulus.
In the context of the current Bitcoin market and fundamental backdrop, the Z-score to the 200DMAs recent fall back to just below 1.0 could be a good medium to long-term buy signal.
That’s because macro conditions are expected to turn more favorable over the course of the remainder of the year – US interest rates appear to have peaked, regional banks remain on the rocks (creating safe-haven demand for “hard money” like Bitcoin and gold) and inflation is coming back under control (giving the Fed more room to eventually start with rate cuts).
Meanwhile, a litany of technical and on-chain indicators, as well as analysis of Bitcoin’s longer-term cycle are all flashing that the cryptocurrency has entered into the early stages of a new bull market.
Near-term bearish predictions of a retest of key long-term support in the $25,000s may well come true, with Bitcoin seeming in a short-term downwards trend channel and still below its 21 and 50-Day Moving Averages.
But many longer-term Bitcoin investors and bulls will likely be waiting on the sidelines to pounce on an opportunity to get Bitcoin at $25,000.