Bitcoin Is Trading at a Loss and Ethereum Is Oversold, According to Kraken – Here’s What Could Happen Next
Bitcoin (BTC) and Ethereum (ETH) are currently trading at a discount, but crypto exchange Kraken says that the bull run might not be over for the two biggest digital assets by market cap.
In its January 2022 crypto on-chain digest, Kraken says that Bitcoin’s spent output profit ratio (SOPR) and Ethereum’s market value to realized value (MVRV) Z-score indicate that ETH and BTC are trading below their fair value, but the exchange says that a rebound is possible.
“Though BTC’s SOPR shows that market participants are mainly trading BTC at a loss, the situation was much worse during Bitcoin’s latest bull run retracement from $65,000 to $30,000 from May 2021 to July 2021 before its rebound to new all-time highs.
Moreover, ETH’s MVRV Z-score shows that the crypto asset is now in ‘oversold’ territory, where it historically has struggled to remain for long periods before a bounce in prices.”
The SOPR on-chain metric determines if Bitcoin owners are selling at a profit or loss. If the SOPR is greater than 1, holders of the asset are selling at profit. Otherwise, they are selling at a loss.
BTC’s SOPR shows a bearish sentiment with a reading below 1, but Kraken says that the metric was worse last year when Bitcoin dropped from $65,000 in May to $30,000 in July.
“Should the metric break through a reading of 1 and hold above that level, it could signal the end of the recent bull market correction. However, if Bitcoin remains below a reading of 1 while [the] price continues dropping, it might otherwise confirm BTC has entered into a bear cycle…
While the SOPR is currently signaling bearish, on-chain data painted a much worse picture during the last similar market correction, after which BTC managed to make a strong comeback. In other words, don’t count BTC out just yet.”
The MVRV Z-score also indicates a bullish outlook for Ethereum. The metric is used to assess market profitability based on whether or not the price of the asset is selling above or below its fair value. A reading above 5 suggests that ETH is overbought, or selling above its fair value. Readings below 1 indicate that the cryptocurrency is oversold, or trading below its worth.
“With ETH down -49% from its all-time high of $4,867 on November 9, 2021, the MVRV-Z Score has fallen into ‘oversold’ territory. History shows that ETH’s MVRV Z-score tends to drop to the “oversold” zone during retracements but doesn’t stay in that range long before prices revert.
The last time Ethereum’s MVRV Z-score fell to this zone was around the time of the Black Thursday market crash in March 2020. Though asset values and network activity are retreating, historical on-chain data suggests that it’s not all gloom and doom for ETH. Market participants have historically accumulated during ‘oversold’ MVRV Z-score readings.”
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