Research Report Explains Why The Crypto Market Might Be About To Reverse

Research Report Explains Why The Crypto Market Might Be About To Reverse

As November begins, analysts are busy dissecting the major market moves that occurred in October. While Bitcoin (BTC) remained relatively unchanged growing just 5.89% in October, Arcane Research senior analyst Vetle Lunde charted the direction the market could take in the coming months.

“Uptober,” a reference to Bitcoin’s historic October bullish performance, was a common theme in many crypto Twitter threads and according to Lunde, it appears to have happened. Data shows that BTC and exchange tokens outperformed the large cap index through October 26.

Elon Musk’s takeover of Twitter helped lift the large-cap index above Bitcoin with a staggering 20% ​​monthly gain. Dogecoin (DOGE) helped consolidate large cap strength by producing a 144% gain in the past seven days.

Index performance weighted for October 2022 performance. Source: Arcane Research

October’s Bitcoin spot market was driven by increased volume and lower volatility, while benefiting from a short squeeze that briefly revived the market. According to Lunde, the last week of October saw the largest short-term liquidation volume in crypto since July 26, 2021.

While this activity helped push Bitcoin up 6%, Ether (ETH) and Binance Coin (BNB) saw more substantial gains at 18% and 19% respectively.

7-day average daily volume of BTC USD with and without Binance. Source: Arcane Research

The short squeeze helped provide an overall boost, but Lunde concluded that the momentum did not create a substantial change in the price of BTC. BTC spot volume is up 46% in the past seven days and the 30-day volatility index is at a 2-year low. Moreover, the 7-day volatility index stands at 2.2%, while the annual average is 3%.

30-day and 7-day volatility for BTC. Source: Arcane Research

Comparing the volatility of a previous short squeeze to the recent short squeeze, Lunde said:

“The July 26 crunch saw a daily high-low of 15% as markets rose in a hurry, while the October 25 and October 26 moves saw daily high-low of 5% and 6%, respectively. Additionally, the momentum has stalled, indicating that traders should prepare for a longer consolidation.”

Although bitcoin’s price is attractive, the best approach to this market is to average short-term dollar cost rather than using leverage, according to Lunde. Bitcoin has seen exceptionally low volatility and is tracking the US stock market closely, so it’s important to follow the Q3 earnings reports.

Fed policy will continue to dictate Bitcoin price

Federal Reserve Chairman Jerome Powell is expected to speak after the Nov. 2 Federal Open Market Committee (FOMC) on U.S. monetary policy, inflation and the upcoming rate hike.

According to Lunde, there are two scenarios to watch out for:

“Scenario 1: Jerome Powell remains astute in fighting inflation and preparing the market for further rises. This is, in my opinion, the most plausible scenario. In this environment, I expect the Correlations between BTC and other asset classes remain elevated and the now 4.5-month trading range to hold firm, with activity slowing, leading to a more durable opportune environment to stack the sats.”

“Scenario 2: Jerome Powell provides subtle pivot cues. In this scenario, I see the correlated market environment softening. Last week, we saw how unique structural crypto-related market activity drove a decline in correlations through substantial short compression. Pivot anticipations will lead to similar reactions and revitalize BTC’s digital gold narrative.”

In the second scenario, some analysts believe the crypto could begin to decouple from US equities. This reaction may reflect the crypto market reaction in mid-2020 which pushed the price of Bitcoin above $20,000.

What to expect in the long term

Longer term, Lunde predicts that Bitcoin and digital asset adoption will continue to be an emerging trend. Pointing to a Fidelity survey that showed increased interest from institutional markets in 2022, Lunde remains bullish on BTC at the current price.

Even though Bitcoin sees fewer on-chain transactions, increased participation from a clearer regulatory framework is possible in the long run. A clearer framework could eventually emerge if the US electorate begins to consider crypto politics when voting.

Bitcoin’s moderate growth, its correlation to stocks, and a persistent downtrend for nearly a year remain a threat, but many analysts believe that Bitcoin’s current price is undervalued.