Bitcoin saw significant volatility around $26,000 last Friday as Federal Reserve Chairman Jerome Powell’s speech on rate hikes and U.S. inflation shook the cryptocurrency market. Jerome Powell acknowledged that the Federal Reserve may be about to raise interest rates again. The price of Bitcoin fell below $26,000 after this news, but quickly rebounded. Traders are now preparing for significant volatility in the price of Bitcoin next week during the “calm before the storm” moment.
Bitcoin becomes undervalued as network activity increases
Bitcoin has been fairly stable lately, disappointing day traders looking for more action, which has led to a downturn in sentiment. Additionally, traders are hesitant to open new futures contracts, especially since open interest has dropped by $4 billion in the past two weeks.
Interestingly, on-chain metrics suggest that Bitcoin is currently undervalued, making it a good opportunity to go long on Bitcoin in the coming week. The NVM ratio recently jumped to 0.52, below the 0.6 level that is considered to indicate undervaluation. The “NVM ratio” is a metric that measures the relationship between the logarithm of Bitcoin’s market capitalization and the square of its number of daily active users.
A high NVM ratio indicates that Bitcoin is overvalued, while a low NVM ratio means it is undervalued. The current downward trend in the metric suggests room for price increases due to positive network activity.
However, September has not historically been a good month for Bitcoin prices. Looking at the weekly returns from week 36 to week 39, Bitcoin usually starts to fall in September, except for the positive events in 2022. However, the good news is that Bitcoin usually rebounds at the end of the month, with an average return of 7% in the last week of September.
Where will the Bitcoin price go next?
Bitcoin price continues to face resistance from the triangle’s upper trendline, suggesting that bearish traders are still selling on the way up. This has limited BTC’s price to the $25,300 to $26,800 range. As of this writing, BTC price is trading at $26,041, having surged more than 0.02% in the past 24 hours.
Consolidation near the lower end of the triangle pattern will be a negative indicator as it suggests that bullish traders are not buying aggressively. Currently, the bulls are attempting to push the BTC price above the EMA20 moving average to strengthen their long positions. However, the RSI levels are hovering below the midline providing an advantage to the bears to defend against any immediate upside.
If the price falls below the $25,300 mark, multiple traders’ stop-loss orders may be activated, potentially leading to a wave of long position liquidations. This could cause BTC price to fall towards the critical support level of $24,700.
On the other hand, a close above the 20-day EMA will be an initial sign of bullish momentum that could pave the way for a rally to the critical $26,800 level. Further buying pressure could break the consolidation and push the price to $28,000.
