Bitwise Flags Fire Sale Conditions For Bitcoin

While volatility establishes itself as a new norm, the recent drop in bitcoin goes beyond a simple technical correction. It reflects a brutal disengagement of institutional capital and a questioning of crypto market dynamics. Between ETF panic and rarely observed undervaluation signals, the crypto leader finds itself at a critical crossroads.

A Historically Low Valuation According to Bitwise

While bitcoin has just spent four months in the red, Bitwise’s analysis team in their February 1^st report warns: “we have entered a fire sale valuation zone.”

This warning is based on the two-year MVRV z-score indicator, a reference tool in on-chain analysis. It has now fallen below the -1 threshold, signaling an extreme undervaluation of bitcoin, a level rarely crossed outside of major capitulation phases.

Bitwise reminds that these levels have historically marked the lows of a cycle or prolonged accumulation zones.

Meanwhile, data on institutional capital flows show a massive withdrawal movement from BTC-exposed products. The report records cumulative net outflows of $1.35 billion on ETPs, including $1.1 billion just in the previous week.

These disengagements are accompanied by a collapse in general investor sentiment. Bitwise highlights in particular :

• A clear disinterest in spot Bitcoin ETFs, despite expectations of inflows ;
• A particularly marked outflow dynamic on American platforms, especially via Grayscale and large asset managers ;
• A Cryptoasset Sentiment Index fallen to levels similar to those of the October 2023 crash, synonymous with extreme fear on the market.

The combination of these elements fuels a tense atmosphere, where the optimism surrounding the arrival of spot ETF products seems to have dissipated as quickly as it appeared.

The First Technical Signs of a Possible Rebound

Despite this intense stress phase on valuations, some market elements reveal a different short-term dynamic.

Bitcoin’s Relative Strength Index (RSI), measured in daily data, has now fallen between 20 and 25. This extreme oversold zone has historically preceded rebounds of over 10 %, in four of the five occurrences since August 2023. Bitwise specifies that this configuration could “open a technical window for reversal, even temporary, in a structurally weakened market.”

Furthermore, cumulative volume data (CVD) on Binance and Coinbase show a resumption of purchases, which could signal emerging support from spot investors. Bitwise emphasizes this point: “these bullish pressures seem to come from the spot market rather than the leveraged market, which limits the risks of forced liquidation.”

This configuration suggests that actors in position are not exposed to massive margin calls, thus reducing the likelihood of a new mechanical shock on the bitcoin price.