Bitcoin traders’ outlook is so bleak that some analysts see buying opportunity

With several BTC metrics hovering at all-time lows and sentiment from cryptocurrency traders is extremely gloomy, some analysts argue it’s time to make short-term contrarian bets.

While there are increasing signs that Federal Reserve stocks are poised to reduce risky asset prices, leading cryptocurrency analysts suggest that now may be a good time to bet contrarian on bitcoin (BTC) price hike.

“Several signs suggest that the cryptocurrency sell-off is extending excessively in the short term,” Arcane analyst Vetle Lunde wrote in a month-end market report. “This represents an intriguing area for making short-term contrarian bets.”

Alex Thorn, head of research at cryptocurrency firm Galaxy Digital Group, said that even if a further slump were on the way, traders who bought BTC on equally sad occasions in bitcoin’s history could return a profit within a month. If the largest cryptocurrency suddenly sells out, it sets $ 17,000 as a key level which would provide strong price support. At press time, bitcoin was trading at around $ 20,000, a far cry from the all-time high of around $ 69,000 reached last November.

“Although macroeconomic factors and monetary tightening may cause bitcoin to fall in the near term, for various reasons, both technical and fundamental, these levels should be seen as opportunistic buying opportunities,” Thorn said in a report.

Cryptocurrencies are having a horrible year, in line with traditional financial markets such as stocks and bonds, in a context of high inflation and rising interest rates. Bitcoin has plummeted 57% this year, while the market cap of all cryptocurrencies has dropped below $ 1 trillion from its peak of nearly $ 3 trillion in November last year.

Despite gloomy economic outlook and Fed Chairman Jerome Powell doubling down on plans for aggressive interest rate hikes at last week’s Jackson Hole Economic Symposium, a number of cryptocurrency market metrics suggest depressed prices could offer a point. interesting entrance.

Historic shopping area

BTC is currently trading below its 200-week moving average, at around $ 23,000. In bitcoin’s pricing history, this has acted as a key level for identifying value buying opportunities and has only happened four times before: twice during the 2015 bear market, the 2018-19 market low, and the induced slump. since the 2020 pandemic.

Whenever BTC fell below average, the investors who bought it made positive returns within a month.

In the history of bitcoin, traders who bought BTC below the 200-week moving average have returned a profit each time in multiple time frames. (Galaxy Research, Coin Metrics)

“In the past, times when BTCUSD was trading below its 200w moving average have proved to be favorable buying opportunities over a number of time periods,” wrote Thorn.

Short-term pain

As is often the case in the markets, when most traders bet one way, prices go the other way.

Many cryptocurrency traders are expecting a further drop in the price of bitcoin, but pessimism has reached such extremes that the short selling position could prove crowded.

Evidence from the bitcoin derivatives market shows that traders have positioned themselves for falling prices, the Arcane report added.

For example, the average daily base for offshore futures has fallen negatively for the first time since the March 2020 pandemic-induced market crash, indicating extraordinarily bleak sentiment in the near term.

BTC’s moving base of offshore futures dropped to multi-year lows at the end of August. (Arcane, oblique)

The ProShares Short Bitcoin ETF (BITI), an exchange-traded fund where investors can profit from falling BTC prices, has seen significant inflows in recent weeks and reached its highest fund size in late August, according to a ‘Arcane analysis, while other funds that manage bitcoin have mostly seen outflows at the same time.

Bitcoin futures are currently trading in backwardation; this happens when monthly contracts are traded at a higher price than long term contracts, which means sellers dominate the market.

Funding rates for perpetual swaps have turned negative and have remained negative for the past two weeks, while open interest has risen almost continuously since the December 2021 correction.

“Everyone is hedging and the short trade looks crowded when measured against historical targets,” Lunde said in the report. “A long BTC, ETH or higher beta altcoin bet with a tight stop-loss looks interesting here.”

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