How ‘undervalued’ Bitcoin’s sell-offs could help set up a long-term rally

Bitcoin’s [BTC] recent bear phase has been severe. The crypto has capitulated from a high of about $126,000 to around $68,000 at press time. And yet, this wave of selling pressure may prove pivotal rather than purely destructive.

In fact, market sentiment seemed to suggest that Bitcoin’s decline could approach a reset point – One where the price begins to recover from recent losses based on prevailing on-chain conditions.

Bitcoin closes in on undervaluation

At the time of writing, data from CryptoQuant revealed that Bitcoin’s Market Value to Realized Value (MVRV) ratio was nearing undervalued territory.

The MVRV ratio measures whether an asset is overvalued or undervalued by comparing its market capitalization to its realized capitalization, which reflects the value of coins at the price they last moved. When the ratio approaches or drops towards 1, it signals undervaluation.

Bitcoin’s MVRV had a reading of 1.1, close to this critical threshold. The last four times Bitcoin entered this zone, it rebounded and transitioned into a broader rally.

However, entering the undervalued zone does not immediately trigger a rally. The price can continue to trend lower while the MVRV remains near or within this range. Historically, such a phase often marks a period of accumulation, as investors gradually build positions ahead of a sustained upward move.

A confirmed rebound from this zone could set the stage for new highs. If bullish sentiment strengthens and macro or geopolitical conditions stabilize, Bitcoin could regain momentum towards the $100,000-level.

What could push Bitcoin into deeper undervaluation?

Sustained selling remains central to driving Bitcoin further into undervaluation. A hike in supply entering the market, combined with weakening demand, would place additional downward pressure on price.

Institutional investors have been leading the prevailing spree of selling activity. In fact, U.S Spot Bitcoin exchange-traded funds (ETFs) continue to record consistent outflows too.

According to Sosovalue data, this is the third time since inception that U.S Spot Bitcoin ETFs have recorded four consecutive weeks of net outflows. On a monthly basis, this represented the fourth bearish month for ETF flows.

Over the last two trading sessions, cumulative outflows reached $686.67 million, approaching the $1-billion mark. These flows implied that investors have been realizing profits or cutting losses on their Bitcoin holdings. If demand remains subdued, sustained selling could push the crypto towards cheaper levels.

Spot market activity seemed to reinforce this weakness too. According to CoinGlass, that demand dropped from $1.02 billion to $89.73 million on 12 February, with net selling being dominant over that period.

Long-term holders remain critical

Long-term holders could play a decisive role in shaping Bitcoin’s next move. Their willingness to accumulate may determine whether the market stabilizes and transitions into recovery.

The Binary Coin Days Destroyed (CDD), which tracks whether long-term holders move their coins, had a reading of 0 at press time. This hinted at relative calm among this cohort, indicating limited large-scale distribution.

Finally, the ratio of long-term holders (LTH) to short-term holders (STH) fell too, implying that short-term holders have been selling more aggressively than long-term investors.

If long-term holders maintain conviction while short-term selling exhausts itself, Bitcoin’s approach towards undervaluation may ultimately serve as the foundation for a broader market rebound.

Final Summary

• Bitcoin’s MVRV highlighted the asset approaching undervalued territory – A level that has preceded rallies on four previous occasions.
• Spot Bitcoin ETF outflows may accelerate Bitcoin’s move towards undervaluation.