The outlook for Bitcoin traders is so dire that some analysts see a buying opportunity.
Some analysts claim that it is appropriate to place short-term contrarian bets because a number of BTC measures are lingering around historic lows and crypto traders' attitude is largely negative.
Leading cryptocurrency experts are advising investors to consider placing a contrarian bet on bitcoin's (BTC) price increasing even as evidence for Federal Reserve moves to lower risky asset prices continues to build.
According to Vetle Lunde, an Arcane analyst, "Several signals suggest that the crypto sell-off is getting overextended in the short term. This represents an intriguing area to make contrarian short-term bets."
The head of research at cryptocurrency company Galaxy Digital Group, Alex Thorn, stated that even if another crash were to occur, investors who purchased bitcoin during earlier, less favorable periods in the cryptocurrency's history would likely see a profit within a month. He identifies $17,000 as a crucial level that would offer solid price support if the biggest cryptocurrency were to abruptly begin to decline. At the time of publication, the price of bitcoin was fluctuating about $20,000, a significant decrease from the record high of $69,000 set in November.
"While macroeconomic factors and monetary tightening can cause bitcoin to trade lower in the near term, for several reasons, both technical and fundamental, these levels should be considered opportunistic buying opportunities," according to a report by Thorn.
Along with traditional financial markets like shares and bonds, cryptocurrencies are having a terrible year due to high inflation and rising interest rates. While the market value of all cryptocurrencies has decreased to around $1 trillion from a peak of close to $3 trillion in November of last year, Bitcoin has fallen 57% this year.
Despite the gloomy economic outlook and the fact that Fed Chair Jerome Powell reiterated his plans for aggressive interest-rate hikes at the Jackson Hole Economic Symposium last week, a number of metrics on the cryptocurrency market point to the possibility that depressed prices may represent an appealing entry point.
At roughly $23,000, BTC is presently trading below its 200-week moving average. This level has only appeared four times in the history of bitcoin's pricing, twice during the 2015 bear market, once during the market bottom in 2018–19, and once during the 2020 pandemic-induced crash.
Investors that purchased in whenever BTC fell below the average saw positive returns within a month.
According to Thorn, "In the past, times when BTCUSD traded below its 200w MA have proven to be favorable buying opportunities across a range of time periods."
Prices typically go in the other direction when the bulk of traders wager one way, as is common in markets.
Many cryptocurrency traders anticipate that the price of bitcoin will continue to decline, but the pessimism has reached such extremes that the short selling position may become crowded.
The Arcane research also stated that traders had set themselves up for declining prices based on evidence from the bitcoin futures market.
For instance, the average daily offshore futures basis turned negative for the first time since the market crisis brought on by the pandemic in March 2020, signaling exceptionally pessimistic short-term sentiment.
According to an Arcane analysis, the ProShares Short Bitcoin ETF (BITI), an exchange-traded fund where investors can profit from BTC's falling price, has seen significant inflows in recent weeks and hit an all-time high fund size in late August, while other funds that manage bitcoin have primarily experienced outflows around the same time.
In backwardation, which occurs when front-month contracts trade at a higher price than those with a far-maturity, sellers presently control the market, bitcoin futures are currently trading.
Open interest has increased nearly continuously since the December 2021 downturn, while funding rates for perpetual swaps have gone negative and have remained there for the past two weeks.
"Everyone is hedging, and the short-trade seems crowded when gauged through historical lenses. A long BTC, ETH, or higher beta altcoin punt with a tight stop-loss seems attractive here," according to Lunde.
By fLEXI tEAM