Research report outlines why the crypto market may be on the verge of a reversal
As November begins, analysts are busy dissecting the big market moves that occurred in October. While Bitcoin (BTC) remained relatively flat with only 5.89% growth in October, Arcane Research senior analyst Vetle Lunde mapped out the direction the market could take in the coming months.
“Uptober,” a reference to Bitcoin’s bullish historical performance in the month of October, was a common theme in many threads on crypto Twitter, and according to Lunde, it appears to have happened. Data shows that BTC and exchange tokens outperformed the major-cap index through October 26.
Elon Musk’s Twitter takeover helped push the large-cap index above Bitcoin with a staggering 20% monthly gain. Dogecoin (DOGE) helped cement its large-cap strength by posting a 144% gain over the past seven days.
October’s Bitcoin spot market was driven by increased volume and lower volatility, while benefiting from a brief squeeze that briefly boosted the market. According to Lunde, the last week of October saw the largest short liquidation volume in crypto since July 26, 2021.
While this activity helped push Bitcoin up by 6%, Ether (ETH) and Binance Coin (BNB) saw more significant gains of 18% and 19% respectively.
The short squeeze helped provide an overall boost, but Lunde concluded that the momentum did not create a significant change in the BTC price. BTC spot volume is up 46% over the past seven days, and the 30-day volatility index is at a 2-year low. Furthermore, the 7-day volatility index is at 2.2%, while the annual average is 3%.
Comparing volatility with a previous short squeeze to the recent short squeeze, Lunde said:
“The July 26 squeeze saw a daily high-low variation of 15% as markets quickly moved up, while the October 25 and October 26 moves saw daily high-low variations of 5% and 6%, respectively. Furthermore, momentum has stalled, indicating that traders should prepare for extended consolidation.”
While Bitcoin is attractively priced, the best approach to this market is to use dollar cost averaging in the short term rather than leverage, according to Lunde. Bitcoin has experienced a uniquely low volatility and follows the US stock market closely, so it is important to track third quarter earnings reports.
Fed policy will continue to dictate the Bitcoin price
Federal Reserve Chairman Jerome Powell is scheduled to speak after the November 2 Federal Open Market Committee (FOMC) meeting regarding US monetary policy, inflation and the upcoming rate hike.
According to Lunde, there are two scenarios to look for:
“Scenario 1: Jerome Powell remains astute in fighting inflation and prepares the market for further increases. This is, in my opinion, the most plausible scenario. In this environment, I expect correlations between BTC and other asset classes to remain high and reach 4, 5-month long trading range to hold, with muted activity, leading to a longer-lasting favorable environment for stacking bets.”
“Scenario 2: Jerome Powell Drops Subtle Pivot Hints. In this scenario, I see the correlated market environment softening. Last week we saw how unique structural crypto-related market activity caused correlations to decline through a significant short squeeze. Pivot expectations will lead to similar reactions and revitalize BTC’s digital gold narrative.”
Under the second scenario, some analysts believe crypto could begin to decouple from US stocks. This reaction may mirror the crypto market’s reaction in mid-2020 that pushed the Bitcoin price above $20,000.
What you can expect in the long term
In the longer term, Lunde predicts that the use of Bitcoin and digital assets will continue to be a growing trend. Lunde points to a Fidelity survey that showed an increase in interest from institutional markets in 2022, and Lunde remains bullish on BTC at today’s price.
Although Bitcoin is seeing fewer transactions on the chain, increased participation from a clearer regulatory framework is possible in the long term. A clearer framework may eventually emerge if American voters begin to consider cryptopolitics when they go to the polls.
Bitcoin’s subdued growth, its correlation to stocks and a steady downtrend for nearly a year remain a threat, but many analysts are confident that Bitcoin’s current price is undervalued.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade involves risk, you should do your own research when making a decision.
