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Oversold Territory: Is bitcoin due for a bounce or further decline?

By Solomon Victor

Bitcoin (BTC) has been falling in value for two weeks, putting it in the undervalued zone. In the last 24 hours, it fell another 6.2% to $60,200. Bitcoin’s market capitalization is now $1.19 trillion, a level last seen on May 15. 

Investors are therefore left wondering if this is a buying opportunity or a sign of further decline, leaving the market on edge, awaiting the next price move. This has brought uncertainty among investors, as the dominant cryptocurrency’s future price action remains unclear. 

Will bitcoin price continue to plummet, or will it rebound from this undervalued zone? 

The oversold zone is a technical analysis indicator that signals a potential reversal in an asset’s price decline. It is measured using the Relative Strength Index (RSI) which compares the magnitude of recent gains and losses to determine overbought or oversold conditions. 

When an asset enters the oversold zone, usually below a RSI reading of 30, it indicates that the price has fallen sharply and may be due for a bounce or correction. This zone serves as a warning sign for bears and a buying opportunity for bulls, as the asset’s price is considered undervalued and may rebound as sellers become exhausted and buyers step in.

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Factors Contributing to BTC’s Current Decline

The downward trend currently happening has pushed BTC into the oversold zone, signaling a potential reversal. The Relative Strength Index (RSI) has fallen below 30, indicating that the price has fallen sharply and may be due for a bounce or correction.

Analyzing the current technical indicators, the RSI reading below 30 confirms the oversold condition, showing that the price may be nearing a bottom. The Moving Averages (MA), also, are trending downwards, with the short-term MA crossing below the long-term MA, indicating a bearish trend

However, the severity of the oversold condition, combined with the recent price action, indicates that a rebound may be inevitable. The market capitalization, which has fallen, further supports the oversold condition. These indicators collectively indicate that Bitcoin’s price may be nearing a turning point, leaving investors wondering if this is a buying opportunity or a sign of further decline.

Read also: After the Fourth Halving: Why Bitcoin price is not skyrocketing (yet)

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Historical data: BTC Price from 2009

BTC was introduced in 2009 with a price of zero. It slowly gained value, reaching $0.30 by the end of 2010. In 2011, it surged past $1, reaching a peak of $29.60 in June, but then dropped to $5 by the end of the year. The price remained relatively stable in 2012, but experienced strong gains in 2013, reaching $732 by the end of the year.

However, in 2016, the price climbed to over $900, and in 2017, BTC price skyrocketed to $19,188 by December. The price then moved sideways in 2018 and 2019, with some bursts of activity. In 2020, the COVID-19 pandemic led to a surge in price, reaching $28,993 by the end of the year, and in the year 2021, BTC reached new all-time highs, surpassing $60,000 in April, but then experienced a significant drawdown and it continued to fluctuate throughout 2021 and 2022, reaching a low of $20,000 by the end of 2022.

In 2023, BTC experienced a stellar rise, ending the year at $42,258. And this year, 2024, the approval of BTC Spot ETFs led to a surge in price, reaching $75,830 by mid-March. 

With this history in mind, there has always been volatility in the BTC market but with rebounds, indicating a possible repetition of history.

Read also: Over 80% Bitcoin Holders in Profit as Price Crosses $41k

The bearish case for BTC’s continued decline is fueled by the cryptocurrency’s failure to hold key support levels, indicating a lack of buyer conviction and a potential trend reversal. This recent breakdown below $63,000, a level that held for six weeks, suggests a significant shift in market sentiment, with sellers now in control. 

BTC’s market capitalization has fallen to $1.21 trillion, a level last seen on May 15, revealing the magnitude of the decline. With technical indicators like the RSI and Moving Averages trending downwards, and no clear signs of a bounce, the path of least resistance appears to be lower, suggesting that BTC price may continue to plummet in the near term. BTC’s support zone between $64,000 to $62,000 has failed to hold, indicating that the next potential downside target is the low $60,000 to $57,000 levels.

Factors behind  the Decline in BTC Price

First, from a fundamental perspective, the current BTC price drop is attributed to a combination of several factors with one key factor being the supply and demand dynamics, where limited BTC supply is being outpaced by increasing demand, driven by media coverage, investor sentiment, and adoption in countries with high inflation. 

Second, another factor affecting BTC price is competition from other cryptocurrencies such as Ethereum, Tether, BNB, USDCoin, and Solana, which are gaining market share and investor attention. 

Read also: BTC faces turbulence as Matrixport predicts SEC rejection of Bitcoin ETFs

Third, investor sentiment and media play a significant role in shaping BTC price. Positive news and developments drive up the price, while negative news and regulatory uncertainty lead to price drops. The lack of regulatory clarity and oversight also contributes to price volatility. Hence, the recent price decline has likely triggered a shift in market sentiment, with investors becoming increasingly risk-averse and skeptical about the asset’s potential for growth. As fear and uncertainty spread, more investors may be prompted to sell, exacerbating the price drop.

Furthermore, the production cost of BTC, such as the cost of mining, is also influencing its price. As the block reward is reduced due to Bitcoin halving, the cost of production increases, which impacts the price.

Read also: Bitcoin hits $35,000 as investors expect BlackRock’s Bitcoin ETF Approval

Potential Outcomes – What Crypto Asset Buyers Should Consider 

Historically, BTC price shows volatility and rebound patterns, with the cryptocurrency consistently showing resilience and recovery after significant declines. Also, the approval of Bitcoin Spot ETFs has led to a surge in price early this year, indicating potential for further growth.

On the other hand, arguments for further decline show the failure to hold key support levels, indicating a lack of buyer conviction and potential trend reversal. Furthermore, regulatory uncertainty, increasing competition from other cryptocurrencies, and generally, limited institutional investment and mainstream adoption also contribute to the bearish outlook.

Crypto asset buyers should, therefore, consider both perspectives when making decisions. 

While BTC history suggests potential for rebound, the current fundamental factors driving the price decline cannot be easily ignored. Regulatory developments, competition, and investor sentiment all play a significant role in shaping the price. 

A balanced view would acknowledge the potential for both outcomes, considering the cryptocurrency’s volatility and resilience, while also taking into account the current market sentiment and fundamental factors.

Hence, it is vital to be cautious and informed, weighing both the historical patterns and current market conditions before making investment decisions.

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