Bitcoin experienced a mighty rally on Saturday, climbing above $58,250. Despite this upward move, it was unable to sustain the momentum and close above the 200-day exponential moving average (EMA). This led to a bearish engulfing candlestick pattern forming on Sunday, signaling potential downside momentum. Bitcoin is currently trading below $56,000, putting it at a critical juncture in terms of technical analysis and market sentiment.

Sina G, COO and Co-Founder of 21st Capital, only if analysis of the factors influencing Bitcoin’s price trajectory today, particularly highlighting recent declines and assessing its undervalued state using advanced metrics. Starting with a historical review, Sina pointed out that Bitcoin has seen a drastic 26% decline since its March peak of $73,000, settling at around $56,000 in recent weeks.

The acute decline is attributed to several macroeconomic and sectoral factors. He says Bitcoin’s decline from $73,000 in March to $56,000 is consistent with historical bull market corrections, which often have significant but transient corrections.

The impact of Bitcoin ETFs was key. Initially, these ETFs contributed significantly to the price escalate from $16,000 to $73,000 as investors engaged heavily in a strategy of buying rumors and news. “ETF flows were very mighty and the market was rising until mid-March. Since then, ETFs have slowed down and bankruptcy outflows have taken over, causing feeble price action all the way to $56,000.

A significant recent influence on the price of Bitcoin was the selling activity of the German government, which disposed of Bitcoins confiscated in 2013 from the pirated content platform Movie2k.to. “The government’s decision to liquidate approximately 10,000 coins in three transactions coincided directly with significant price declines on specific dates in June and July,” he noted. This sell-off contributed to a acute 24% crash in June and July, exacerbated by the vast amount of Bitcoins being introduced to the market.

Is Bitcoin undervalued?

To answer the question of whether Bitcoin is currently undervalued, Sina turned to the Volatility-Adjusted Price Level Index (VPLI), a proprietary indicator developed by 21st Capital. “Our VPLI currently stands at -3.57, which indicates that Bitcoin is well below its fair price,” Sina said. He also explained that historically, a VPLI reading of -10 corresponds to bear market lows, putting the current reading into context as suggesting that Bitcoin is potentially undervalued.

“This puts us in the 41st percentile of value – i.e. Bitcoin has only traded 41% below this VPLI reading (most of that during bear markets). So the risk-reward balance is favorable,” he added.

Looking ahead, Sina highlighted two key short-term indicators that could dictate Bitcoin’s immediate price action: the German government’s continued sale of Bitcoin and the behavior of the perpetual swap funding rate. “The funding rate has been negative recently, which is typically a bearish signal. This suggests that many traders are taking short positions, anticipating further declines, which paradoxically could indicate that the market is close to bottoming out,” he concluded.

At the time of going to press, the BTC price was $55,835.

Featured image created with DALL E, chart from TradingView.com