Bitcoin’s Z-Score Dips Below 1.0: Opportunity to Invest or Cause for Concern?

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A key metric gauging the momentum in Bitcoin price has reportedly fallen to its weakest point since March, as Bitcoin’s Z-score to its 200-Day Moving Average (200DMA) dropped below 1.0. This indicates that the current Bitcoin price is just under one standard deviation above its average daily closing price over the past 200 days. Notably, about a month ago, following Bitcoin’s yearly high above $31,000, the Z-score to its 200DMA stood at 2.27.

The decline in Bitcoin’s price momentum has been attributed to traders booking profits in the wake of this year’s rally and tempering their optimism regarding the potential rally of Bitcoin for the remainder of the year. Factors such as the uncertain outlook of US crypto regulation and possible interest rate cuts by the Fed have contributed to this cautious stance. Moreover, the surge in Bitcoin transaction fees, owing to the rising popularity of the new BRC-20 standard, is believed to have weighed on the digital asset’s price. This has, in turn, deterred the traditional usage of Bitcoin as a digital currency ledger, with active daily users and new addresses interacting with the blockchain witnessing a sharp decline recently.

Despite the ongoing challenges, a Z-score close to 1.0 has often been considered a good time to invest in Bitcoin, especially if the cryptocurrency is thought to be in the early or middle stages of a bull run. While this wasn’t the case for Bitcoin in 2019 and early 2020, late-2020 witnessed a bull market for the digital asset, fueled by substantial fiscal and monetary stimulus.

Given the current Bitcoin market and fundamental backdrop, the Z-score to the 200DMA falling below 1.0 could present a good medium to long-term buy signal. This is because the macro conditions are expected to improve throughout the remainder of the year, with factors such as US interest rates peaking, regional banks struggling (prompting safe-haven demand for assets like Bitcoin and gold), and inflation coming back under control (allowing the Fed more room to implement rate cuts).

Furthermore, numerous technical and on-chain indicators, along with an analysis of Bitcoin’s longer-term cycle, suggest that the cryptocurrency has entered the early stages of a new bull market. Although short-term bearish predictions of a retest of crucial long-term support in the $25,000s may come to fruition, many long-term Bitcoin investors and bulls are likely waiting for an opportunity to acquire Bitcoin at that lower price.

Source: Cryptonews

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