Crypto bottom? What analysts are saying about bitcoin’s break above $20,000
by James · October 30, 2022
Bitcoin moved above $20,000 last week and has held that level ever since, after spending much of the month sitting quietly in the $19,000 area, suggesting to some eager investors that the tide may be turning for the crypto. The cryptocurrency rose for the second week in a row, by 7.25%, although in the previous week it ended up only 0.01%. Ether also had an up week, the first in the last four. It ended 19.48% higher. The upward pressure came ahead of the Federal Reserve’s two-day policy meeting next week and the midterm elections that follow the week after that. “We’ve been saying all year that we could get positive news in November, and we think next week’s FOMC meeting could provide some positive comments ahead of the midterms on potential future rate hikes,” said Steven McClurg, co-founder and chief investment officer at digital asset fund manager Valkyrie Investments. “Additionally, elections provide more financial certainty, and a swing to a Republican-controlled House and Senate would satisfy the market to bring some upside to risk asset pricing,” he added. “We see a possible light at the end of the tunnel, and others are acting on these ideas.” October is a historically strong month for crypto, but this month prices and volatility have been relatively flat. Just last week, both bitcoin and ether fell slightly for the month, but this week’s rise has pushed them into the green. If prices fall again, $18,100 will be the level to watch, Morgan Stanley’s Sheena Shah pointed out in a note on Thursday. If they push higher, bitcoin’s recent high of $22,800 will be the next stop before $25,000. “In the short term, bitcoin may still need to shrug off the disappointment from the stock market, but the level around the $19,500 level is likely to be supportive the price,” said Yuya Hasegawa, crypto market analyst at Japanese crypto exchange Bitbank. “Bitcoin’s breakout from last week’s narrow range was accompanied by a significant increase in trading volume, which from a technical perspective is a reliable breakout.” Don’t call it a bottom yet. The strange inactivity has investors wondering if the crypto market could turn for the better and break out of this year’s rut. To many, it looks like the starting phase of a new bull run. However, there is not enough evidence yet to call it that, analysts say. “In the past, when price volatility was so low, it usually meant that the downtrend was coming to an end, but many of the chains we analyzed still cannot confirm that the price has bottomed out,” said Julio Moreno, senior analyst at CryptoQuant. Not only that, investors shouldn’t rule out another big drop either. Charts from CryptoQuant show that in 2018, there was a 50% price drop that followed a period of low price volatility, taking bitcoin from $6,500 to $3,200 in a month, Moreno noted. Like this year, that event followed a bear market in which bitcoin suffered a 67% decline from its peak, Morgan Stanley’s Shah said. It also suffered “crypto QT” – or what the firm has previously described as the “crypto equivalent of quantitative tightening” – following the decline in Tether (USDT) stablecoin market capitalization. This year there has been a gradual decline in USDT and USD Coin (USDC). This week, Morgan Stanley pointed out that bitcoin’s 1-month realized volatility is now lower than the volatility of both the S&P 500 and the Nasdaq Composite — a “rare occurrence, seen only in November 2018 and October 2016,” Shah said in Thursday’s note. . However, that is not enough, CryptoQuant’s Moreno said. He is also looking for an increase in flows from spot exchanges to derivatives exchanges. That, combined with the recent low volatility, would provide more evidence of a bottom, but bitcoin today is still leaving derivatives exchanges. “For low price volatility to be associated with bottoms, the share of bitcoin inflows to exchanges dominated by whales should be relatively low,” he said. “Regarding the bottom of the market in 2019, that estimate was 68-70%, compared to about 83% currently.” CryptoQuant also analyzed bitcoin’s MVRV, or market value to realized value, ratio, showing that the crypto has not entered undervalued territory. In addition, long-term holders account for 80% of the cryptocurrency’s realized cap, which is in line with previous market cycles’ price bottoms. Both of these metrics support the idea that a market bottom is in, Moreno said.
