Three Signs Indicating Bitcoin is Approaching a Market Bottom

Three signs that Bitcoin is finding its market bottom

Summary:
Bitcoin has recently experienced a decline of over 35% from its all-time high of approximately $126,200 reached just two months ago. However, recent technical and on-chain indicators suggest that the cryptocurrency may be forming a local bottom. This article explores three key signals indicating a potential recovery for Bitcoin.

Key Takeaways:

Indicators of market momentum, miner capitulation, and liquidity are signaling a reduction in selling pressure.
Predictions based on macro liquidity suggest that a Bitcoin recovery could occur within the next 4 to 6 weeks.

Bitcoin Sellers Approaching Exhaustion

As of December, the weekly Stochastic RSI for Bitcoin has started to rise from oversold levels, a pattern historically linked to important turning points before price rebounds, as illustrated by trader Jesse in the accompanying chart.

BTC/USD weekly chart. Source: TradingView/Jelle

Similar bullish crosses have been seen in early 2019 (when Bitcoin bottomed near $3,200), March 2020 (the COVID crisis low at about $3,800), and late 2022 (around the $15,500 cycle low). In all these instances, momentum shifted before the price did.

Further emphasizing this indication, Bitcoin's three-day chart shows a bullish divergence, where the price has made a lower low, but the momentum has remained steady.

BTC/USD three-day chart. Source: TradingView/Jelle

This pattern also appeared before the mid-2021 correction low and in the aftermath of the FTX collapse in 2022, both of which were followed by significant recoveries. These indicators suggest that selling pressure in the Bitcoin market could soon be depleted, a sign typical of market bottoms rather than mere short-term relief rallies.

Bitcoin Miner Capitulation Signals a Potential Bottom

Bitcoin's hashrate decreased by 4% in the month leading up to December 15. VanEck analysts Matt Sigel and Patrick Bush view this as “a bullish contrarian signal” that indicates miner capitulation. Historically, prolonged periods of hash rate decline have preceded stronger returns for Bitcoin. They noted that since 2014, Bitcoin has shown positive returns for 90 days 65% of the time after experiencing a 30-day decrease in hashrate.

Bitcoin mean hash rate vs. price. Source: Glassnode

The data points reveal an even stronger trend over longer periods, with positive 180-day returns occurring 77% of the time, averaging gains of 72%. Rising BTC prices could also boost miner profitability and bring idle mining capacity back onto the network.

Bitcoin's Potential Rally in 4-6 Weeks According to Macro Indicators

Bitcoin may be nearing its bottom as liquidity conditions show signs of improvement, a phenomenon that has historically led to significant reversals in Bitcoin's price. Analyst Miad Kasravi's analysis, which examined 105 indicators, indicates that declines in the National Financial Conditions Index (NFCI) often signal a Bitcoin rally within a four-to-six-week period.

Chicago Fed National Financial Conditions Index. Source: FRED

This signal was noted in late 2022 and mid-2024, both preceding sharp price increases. Historically, each 0.10-point decrease in the NFCI corresponds with approximately 15%–20% upside in Bitcoin, with more pronounced NFCI readings marking extended upward phases for Bitcoin.

NFCI Index vs. Bitcoin price. Source: X

As of December, the NFCI is at -0.52 and continues to trend lower.

NFCI Index vs. Bitcoin price. Source: X

A potential driver for this shift could be the Federal Reserve’s strategy to rotate mortgage-backed securities into Treasury bills. Kasravi likens this approach to the liquidity injection in 2019, which preceded a 40% Bitcoin rally.

Despite these indicators, many market experts remain cautious, with expectations that Bitcoin's price may decline further, pointing to targets that range from $70,000 to $25,000.