How to Spot a Bitcoin Crash

Bitcoin - Shutterstock photo
Credit: Shutterstock photo

Bitcoin (BTC) reached an all-time high of $68,940 in 2021 and since then, its price slumped nearly 36%. The big question for crypto traders is whether this is a good opportunity to buy at a bargain price, or if we are heading towards an even deeper sell-off.

There are a number of ways to determine if we've hit bottom, using indicators like Market Value to Realized Value, Realized Cap HODL Wave, Reserve Ratio Risk, and inflow/outflow of bitcoin from crypto exchanges can help us discover the answer.

Is Bitcoin in a Bear Market?

Before we explore these indicators, we need to define what a bear market is. By definition, a bear market takes place when the price drops 20% from its most recent high. This has happened already for bitcoin, as the price is down over 35%. But being in a bear market doesn't automatically mean that bitcoin is at a bargain price, or that it'll continue going down. Below, we'll go over the other key indicators to get a better sense of what we can expect for BTC's price from here on out.

Market Value to Realized Value

The first indicator is called "Market Value to Realized Value" (MVRV). The MVRV is the ratio of a cryptocurrency's market cap to its realized cap. The realized cap relates to the cost basis of the coins, while the market cap refers to the actual value of the supply. The indicator tells us if the price of bitcoin is overpriced or undervalued at a point in time.

When the indicator shows a high value, it signifies that the asset currently has a large amount of unrealized profit locked in it. When the MVRV reading is over 3.5, a top formation usually emerges, and investors become more likely to harvest their gains given high levels of MVRV reading.

The chart below shows the green horizontal line presents a great opportunity to buy when MVRV drops below 1, the red horizontal line shows the higher value of MVRV (which is above 3), and this is usually where the bitcoin price retraces.

The back testing of this strategy supports the argument that it provides valid signals to determine whether the price of Bitcoin has crashed—a good time to buy—or if it is overvalued—a good time to book some profit. The yellow arrow on the chart shows the crash in the Bitcoin price, and also in the MVRV. As for the red arrows, they show a peak in the MVRV value, and in the bitcoin price.

Market value to realized value

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Looking at the current situation, the indicator certainly shows that it is approaching its maximum level, meaning it might not necessarily be a bargain at this point. But this isn't the only chart we're looking at.

Realized Cap HODL Waves

The below chart is another great indicator because it gives us information about bitcoin investors by telling us if they're nervous or comfortable, and in this case, we can see that they are very comfortable. Different time wave lengths are increasing, which means that the majority aren’t worried about the correction in the Bitcoin price and are hanging on to their holdings.

Realized cap HOLD waves

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Bitcoin: Reserve Risk

Another important indicator which is also believed to be a strong contender to spot a crash in bitcoin's price is the reserve risk. Price/HODL Bank is how Reserve Risk is calculated. It is used to determine long-term holders' confidence in the coin's price at any particular period in time. When confidence is strong and prices are low, investing offers an appealing risk/reward ratio, and when confidence is low and prices are high, the risk/reward ratio is unappealing.

The chart below shows that it isn't overpriced, nor oversold.

Bitcoin reserve risk

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Bitcoin Outflow and Inflow

The most recent data from CryptoQuant indicates the highest amount of BTC leaving the exchange since September 10th. Basically, it indicates that whales are removing the supply, which is creating optimism that the price will increase. The biggest outflow happened on January 11th this month, and since then we have experienced a rebound in the price. In short, this is very much a supply and demand balancing act, and the amount of supply in circulation could adversely influence the BTC price and vice versa.


There is no doubt that bitcoin is in a bear market, but none of the above indicators show that the bitcoin price has crashed. In fact, there are some signals of the price reaching near its overheating levels, but they aren’t significant. For long-term hodlers, especially those who anticipate bitcoin reaching a price of half a million or more, any dip is a good entry point. But in the near term, we could continue to see more volatility in the price of bitcoin.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Naeem Aslam

I am a former Hedge Fund Trader with over 15 years of experience in investment banking. During my early career, I was awarded a national award (Young Irish Broker) in 2010. Over the years, I have worked with Bank of America in equity trading and with Bank of New York in hedge fund trading. I specialize in Blockchain technologies (cryptocurrencies and digital assets) and Sustainable Investments. In my career thus far, I have also extensively covered Equities, Commodities and Forex.

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