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Battered Bitcoin Fans Start Contemplating Market Bottom

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(Bloomberg) — There’s a growing buzz in crypto investor circles and on Twitter around bitcoin’s hidden July rally, which is besieging investors starting to speculate whether the biggest digital asset has bottomed out.

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However, given how intense the boom and bust cycles in the sector can be, many also remain cautious, unwilling to give clear signs given the volatile nature of digital tokens – even when they see signs that Bitcoin has found a floor.

This is because it has happened many times before – the coin shows a monstrous surge, which, in hindsight, turns out to be nothing more than a bear market rebound. And making that call might be even more difficult right now, given that digital assets have traded in tandem with US equities all year, where there is much disagreement among strategists over whether the worst selling has ended.

It’s hard to name a bottom, especially “with this one because its rally was fueled so heavily by young people who had never invested in anything before,” said Matt Maley, chief market strategist at Miller Tabak + Co. a liquid asset right now, so as long as the Fed tightens policy it will be hard to see a sustained rally. Secondly, the asset class has lost a lot of investor confidence, so it will take time to regain that confidence.”

Bitcoin gained roughly 15% in the last month through Friday, while other tokens, including Ethereum, posted even better returns. Sean Kruse, chief trading strategist at TD Ameritrade, says it will take a change in risk appetite before the coin moves significantly higher.

Bitcoin “could probably tread lightly here for a while,” Cruz said. “It’s a matter of waiting for risk appetite to change.”

Many do just that—watching stocks looking for a road map of how things might play out with digital assets. Noel Acheson, head of market intelligence at crypto lender Genesis, points to an investor survey conducted by Bank of America that showed grim sentiment and potential investor capitulation. Many stock watchers see the poll as a counter signal.

She also looks at what is called the “exit earnings spent ratio” of long-term bitcoin holders, i.e. those who hold at least five months on average. The figure is currently below 1, which means that even long-term holders are selling at a loss. A drop below that level has historically signaled a bottom is approaching, she said.

There are many other similar analyzes that can be found for bitcoin. The token and its siblings have experienced “one of the heaviest and fastest repricing events down in their history,” Glassnode analysts write, meaning a ton of excess leverage has already been removed from the system. And in order to set a minimum threshold, investors must experience a “large-scale capitulation event” that causes sellers to be exhausted.

They monitor a metric called realized value, which shows the difference between the value of a coin at the time of sale and at the time of purchase. According to them, this is often considered the price of acquiring bitcoins on the network. Right now it is showing an unrealized loss of minus 5% and previous bear markets have also tended to drop below the realized price.

“Multiple signals indicate that a real bottom formation may be taking place,” Glassnode analysts wrote.

However, eternal optimism is a must for a crypto investor. Billionaire manager Mike Novogratz recently said that “the worst is behind us” in the crypto industry and that while some of the recent issues may have increased distrust among retail investors, the case for Bitcoin is still strong. Meanwhile, the most prominent activist in the sector, Elon Musk, said that his company Tesla Inc. sold a significant portion of its bitcoin holding, although he said the move should not be seen as a judgment on the coin.

The bottom has been reached, according to Alex Tapscott, managing director of digital asset group Ninepoint Partners, although he does not rule out a possible $19,000 retest. However, “Bitcoin’s risk reward is heavily skewed to the upside,” he said. “For a long-term investor, this is a rare and enticing entry point.”

Whether or not it bottomed out makes a huge difference to the sector – retail investors tend to shy away from buying when the market is in a downturn. This cohort may begin to gradually return if the idea that a bottom has formed prevails.

However, calling it final is a challenge, and not everything signals absolute purity. Glassnode analysts also point to MVRV, which divides the market value by the average purchase price. It is currently trading at 0.95, which is not as deep as the 0.85 average seen in previous bear markets.

“This could mean further declines and/or consolidation time needed to bottom,” Glassnode said. “However, it could also signal more investor support in this bearish cycle.”

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