According to the technical indicators, Bitcoin's chart does not show any significant changes. The asset managed to recoup Tuesday's drop a little at the end of the day. However, BTC continues to decline within a sideways channel. At the same time, Bitcoin still has room to move to the lower boundary of the sideways channel of $28,600- $32,000.
Currently, it is clear that the medium-term trend is likely to be determined by the breakthrough of the range. Many crypto analysts are predicting bearish sentiment, even though the recent upward bounce gives some hope. In addition, most people who hold the token also do not appreciate expensive BTC.
Why negative market sentiment
According to Santiment, a weighted sentiment metric indicates an extremely bearish outlook for Bitcoin. The observation suggests a mostly negative attitude from BTC holders in the market. However, this can also lead to unexpected "upside swings" with a high leverage ratio and an over-average negative funding rate.
Amid this background, one crypto analyst tried to predict a new low of the main cryptocurrency in 2022. He later added: "Whether you like it or not, capitulation is likely," given the current market situation.
Meanwhile, the Bitcoin Fear and Greed index is currently at 17 in the "Extreme Fear" territory. Despite analysts' bearish comments, the main cryptocurrency has recovered well recently. The Bitcoin network has also seen a surge in activity, with volume up by 13% to $40 billion.
What's going on behind the crypto market
Other experts are paying attention to what's going on in the Bitcoin network, assessing the fundamentals that continue to set higher levels for valuation.
One of these key indicators is the growth of active entities on the network. An active entity is an estimated cluster of addresses controlled by the same individual, institution, or market participant. "Active" means that you sent or received Bitcoin on that day.
The index is calculated from Glassnode data. Although it cannot be considered conclusively reliable, it works well to track growing demand over time.
Thus, the number of active entities has more than doubled since 2016, from 126,904 to 255,333. The top of the last two cycles was preceded by active entity growth and spikes, reaching 376,549 and 432,636 in 2016 and 2021 respectively.
Subsequent bottoms tended to have higher lows as each cycle printed a new high on the active entity. This clearly shows that the number of new "users" who are using Bitcoin's on-chain transactions over time is increasing.
Bitcoin entities, the value of the network, and the number of addresses with non-zero balances continue to grow, indicating wider adoption of the major cryptocurrency.
How to estimate the market value of Bitcoin
Onchain data analysts have also tried to estimate the changing market value of Bitcoin. One such useful attempt has been the Network Value to Transactions (NVT) ratio. It is the ratio of Bitcoin's USD market capitalization to the USD value of the on-chain transaction volume, tuned for the activity of the internal entity.
Bitcoin's NVT ratio shows a clear trend of increasing the value of the network over time. Higher values above the trend indicate that it is overpriced, while lower values below the trend indicate that the price is undervalued.
There is a growing supply of Bitcoins that can be off-chained on exchanges, and the growing adoption of the Lightning Network, which is not accurately reflected in the NVT ratio.
Widening adoption of cryptocurrency
The next indicator that is proposed to measure is the number of Bitcoin addresses with a non-zero balance since 2012. With some counting methodology, it gives a simple indication of the growing adoption of Bitcoin. The number of non-zero balance addresses continues to grow at a double-digit rate each year, with an annual growth rate of 18.2% in 2022.
Using a simple trend forecasting model, the number of non-zero-balance addresses will nearly double by 2026 at this rate. This forecast assumes annual growth of only 10-13% each year, well below the current trend. In effect, this high-level view reflects the adoption of Bitcoin's S-curve over time.
Conclusions
The acceptance of Bitcoin and the crypto industry is rising on a global scale. However, that does not prevent the price from pulling even lower amid a local state of extreme fear. Nevertheless, I still prefer technical analysis, especially in times of uncertainty.
Therefore, we continue to wait for the price to break out of the sideways channel. Until it has not happened, there is no point in worrying about local movements. We can cautiously trade within the corridor on the rebound, keeping in mind risks and protecting positions with Stop Loss orders.
