Bitcoin (CCC:BTC-USD) is the first, biggest and most important cryptocurrency, so its 40%+ drop the last couple of months as gotten a lot of attention.
There are the “I told you so” folks who says it’s all falling apart, just like they knew it would all along.
Then there are the people who actually study and follow Bitcoin and altcoins, and the entire cryptocurrency industry. They know the transformative power of blockchain.
Think of Bitcoin like the S&P 500 or Wilshire 5000 stock market indexes that give you the best picture of the market as whole. Then, think of altcoins as smaller stocks with more potential.
The transformative technology that is blockchain will take time to move us forward and change everything it can. Smart crypto investors are in it for the long term.
At the same time, everyone wants to know if and when Bitcoin will start moving higher again.
Let’s talk about that. We see several indications that the selling in bitcoin may be about to end … and that’s when we expect it to resume its march toward $100,000.
Here are six indicators flashing good news right now…
Bitcoin’s trading range: Since the massive drop on May 19, Bitcoin has been stuck in a range between $31,000 and $40,000. It has been a relatively stable trading range, with Bitcoin moving from the bottom of the range to the middle this week.
If Bitcoin were to break below $31,000, I expect the drop would be short-lived and that buyers would come in heavily in the mid-$20,000s.
If Bitcoin breaks about $41,000, it could be off and running. And whether that happens now or we need to wait a little longer, altcoins should outperform Bitcoin along the way.
Selling volume is diminishing: The only reason investors move bitcoins to an exchange is to sell them, so we can gain important insight looking at the total number of coins transferred to exchanges. The good news is this total transfer volume is now relatively low.
The amount of Bitcoin transferred to exchanges peaked on May 19. As panic selling set in, more than 166,000 bitcoins were transferred. Other big transfer days included May 13 (about 100,000 coins) and May 17 (about 107,000). This indicated a lot of selling pressure, and the price action reflected this. There simply weren’t enough buyers to absorb this increase in exchange supply.
At the beginning of this week, only about 40,000 coins were moved onto exchanges — about half as much as the big selloff days. That’s a bullish signal … the equivalent of selling volume dropping in the stock market.
Fewer leveraged liquidations: We see a strong link between the massive selloffs on May 12 and 19 to high open interest in futures and leverage. As the price dropped, investors rapidly sold these leveraged positions, putting more downward pressure on the price.
But over the last 21 days, forced sales in the futures markets have stabilized, and total liquidations have dropped to low levels. Open interest in Bitcoin futures has also dropped significantly.
Once Bitcoin breaks out from its trading range, futures open interest will probably increase rapidly. But in that case, it should help drive the price higher as short-term traders make bets based on the strength of the breakout.
Money on the sidelines: With stocks, analysts watch the amount of cash in money market accounts because that is basically money on the “sidelines” ready to be invested. With bitcoins and cryptocurrencies, we look at the amount in stablecoins, which are tied to the U.S. dollar and are basically crypto money market accounts.
In particular, we look at the stablecoin supply ratio, or SSR. This is the ratio between Bitcoin supply and the supply of stablecoins denoted in BTC. When the SSR is low, there are more stablecoins relative to Bitcoin … meaning more Bitcoin “buying power.” That’s exactly what we have right now with the SSR at its lowest levels of 2021.
This tells us that there is a lot of money on the sidelines ready to be redeployed into crypto specifically. All of this “dry powder” on the sidelines can act as a significant catalyst once we see a breakout.
Fear and greed: All investing markets act emotionally, and that’s especially true with cryptos. It’s just human nature to get greedy when prices are going up, which results in FOMO, or “fear of missing out.” Conversely, people tend to react with just plain fear in the face of falling prices, so they tend to sell.
This behavior can be quantified in the Fear and Greed Index. This is the heart of contrarian indicators, and we are big fans. Extreme fear means investors are overly worried and willing to part with their cryptos at really low prices — which means buying opportunities. Extreme greed means a correction is due.
The Byte Fear and Greed Index takes six measurements into account — volatility, market momentum, social media, surveys, market capitalization dominance and trends. Data from all these categories are crunched together to measure market sentiment. A score of 0 would indicate extreme fear while 100 means extreme greed.
So where’s the reading now? All the way down to 13!
This confirms what we already know — there is a lot of fear in the crypto market right now. But it won’t stay that low. The transformation and trend are too powerful, which means these unusually low prices are a great buying opportunity in bitcoin and the strongest altcoins that we expect to surge a lot higher over time.
In the big picture, Bitcoin remains in outstanding shape even with the recent selloff that amounts to nothing more than a speed bump on the road to higher prices.
That is even truer for altcoins. When Bitcoin gets volatile, that volatility is often magnified in the altcoin markets. But the opposite is also true. That’s where we see the big money being made over time.
On the date of publication, Matthew McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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