Fidelity Downgrades Bitcoin Forecast to "Neutral" Amid Market Shift

In Fidelity Digital Assets' latest Signals report, Bitcoin's medium-term forecast has shifted from "positive" to "neutral." This adjustment is attributed to a potential shift in valuation, indicated by the Bitcoin Yardstick, which quantifies whether the cryptocurrency is undervalued. Additionally, factors such as increased selling pressure from long-term holders and an influx of addresses in profit (99%) contribute to this neutral outlook.

Fidelity Downgrades Medium-Term Bitcoin Forecast to "Neutral" Amidst Market Shift

In its latest Signals report, Fidelity Digital Assets has revised its medium-term outlook for Bitcoin (BTC) to "neutral" from "positive," acknowledging a shift in market dynamics.

Bitcoin's Valuation: From Affordable to Potentially Overvalued

Previously, Bitcoin was considered affordable based on the Bitcoin Yardstick, a valuation tool similar to the price-to-earnings ratio used in stock evaluations. However, during the first quarter of 2024, the Yardstick consistently indicated that Bitcoin was trading above its mean of 51%, suggesting it was potentially overvalued.

99% of Bitcoin Addresses in Profit, Triggering Potential Sell-Offs

Moreover, the report highlights that 99% of Bitcoin addresses are currently in profit, creating incentives for selling and adding to potential downward pressure on the cryptocurrency's price.

On-Chain Indicators Point to Neutral Assessment

Other on-chain indicators, such as the Net Unrealized Profit/Loss (NUPL) ratio and the MVRV Z-Score, further support the neutral assessment. These metrics suggest that Bitcoin is neither significantly overvalued nor undervalued relative to its "fair value."

Short-Term Optimism Despite Neutral Medium-Term Outlook

Despite the neutral medium-term forecast, Fidelity remains optimistic about Bitcoin's short-term prospects. The firm notes the potential for short-term profit-taking as Q1 2024 concludes but emphasizes the absence of extreme indicators typically associated with bull market peaks.

Bitcoin in the Midst of Bull Cycle, According to Fidelity Research Director

Throughout the first quarter, Bitcoin exhibited bullish momentum, consistently trading above its 50-day and 200-day moving averages. Chris Kuiper, Fidelity's director of research, believes that the cryptocurrency is in the midst of a bull cycle, with on-chain indicators pointing to substantial growth from recent lows.

Robust On-Chain Accumulation and Support Levels

Fidelity's report also emphasizes robust on-chain accumulation by smaller investors, as well as a decline in exchange balances, indicating a preference for self-custody and reduced selling pressure. Additionally, the realized price, which estimates the average cost basis for Bitcoin holders, has established a strong support level at approximately $28,000.

Market Midpoint, with Historical Gains Expected in Second Half of Cycle

Kuiper emphasizes that the market is not yet approaching historical extreme highs, suggesting it is at a midpoint in the market cycle. Historically, most price gains have occurred in the latter half of these cycles.

Modest Uptick Post Halving Event

After a period of range-bound movement, Bitcoin has recently experienced a modest uptick. Following the weekend's halving event, the cryptocurrency achieved a ten-day high of $66,863.

Conclusion

Fidelity's revised medium-term forecast for Bitcoin to "neutral" reflects a shift in market dynamics, with potential selling pressures stemming from overvaluation and profit-taking. However, the firm remains optimistic about the short-term prospects, acknowledging the cryptocurrency's bullish momentum and robust on-chain activity. Fidelity also anticipates significant price gains in the latter half of the current market cycle.