The marketplaces for cryptocurrencies are typically volatile. As of this writing, Bitcoin (BTC), the most valuable crypto with a market capitalization of $758 billion, is down 42% from its all-time high of $69,000 only five months ago. When the cryptocurrency market falls, you can be caught off guard.
Market analysts and professional traders, on the other hand, are regularly forewarned of impending crashes by telltale indications and trends.
The pros can gauge market sentiment in three ways, based on the methodological conviction and disciplinary background:
- Technical analysis
- Macro indicators
- On-chain analytics
You can use all of these factors when trying to predict the market, even though they all focus on different data.
Bearish Indicators in Technical Analysis
Technical analysis, or the study of candlestick price charts, is a vital trading tool.
To determine where Bitcoin is headed, Josh Olszewicz, head of research at virtual asset investing firm Valkyrie Investments, said that he employs Bollinger Bands, a prominent price volatility predictor. According to this tool, things appear to be bearish for the main crypto, Bitcoin, currently.
Bollinger Bands contract or expand based on two standard deviations — a numerical calculation – from the price of Bitcoin’s “20-period moving average.” The average price over the previous 20-candle period is sometimes referred to as the 20-period moving average.
According to Olszewicz, the market is bearish depending on the weekly Bollinger Bands since Bitcoin keeps trading below the 20-week rolling average of $42,700 (At time of writing).
Cryptocurrency traders, many of whom are independent day traders, prefer other technical analysis tools.
EZCharts, a pseudonymous cryptocurrency trader, said that he usually looks at Bitcoin’s weekly price closes and wicks to test a bearish tendency. Bitcoin price creates particular shapes on the chart as time passes, indicating its direction.
While Bitcoin is typically marketed as a non-associated asset that allows investors to buffer against the traditional market, recent data suggests that Bitcoin is highly correlated with equities. Bitcoin’s relationship with traditional finance isn’t good news at a time when macro factors (monetary tightening, inflation, equities, etc.) are negative.
Bitcoin’s correlation to the Nasdaq achieved all-time highs of 0.70, as per research by Arcane Research in April 2022.
Analysts use a negative one-to-one scale to determine correlation, with a negative one indicating that prices move in the opposite way and one showing that they are totally synchronized. “The correlations across asset classes are in an extreme state,” the author of the report, Vetle Lunde, an expert at Arcane mentioned, pointing to Bitcoin’s strong association with equities and concurrently negative association with the US Dollar Index (DXY).
However, the link does not imply that Bitcoin follows stocks in general. Because Bitcoin and equities have almost no temporal difference, they usually go up or down at the same moment. Bitcoin can also drop or increase ahead of the Nasdaq in rare situations.
The information is accessible “on-chain” for everyone to see because the majority of cryptos use public blockchains to validate and record transactions. On-chain analytics, which examines crypto wallet balances and transaction data to assess market dynamics, has risen as a result of this.
If Bitcoin were to plummet, an on-chain analysis could tell us how low it could go.
A statistic known as “realized price by cohort” was promoted by Whalemap, an on-chain analytics application. The measure calculates the average price at which Bitcoins were purchased on the blockchain by various types of wallets, such as “whales” who own between 10 and 100 Bitcoins.
According to the statistics, the band’s current value is between $27,000 and $25,000. “This should serve as a long-term support for Bitcoin that we can be historically confident in,” Whalemap stated if Bitcoin’s price starts to plummet.
However, that is a big if – and besides, there is no way to know for sure. “Some people are bullish here,” EZCharts, an anonymous trader listed above with a bearish take, said to sources. Nevertheless, keep in mind that it wouldn’t be a market if there weren’t some bulls and some bears.
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