Bear Case for Bitcoin Is Looking Strong Right Now; Crypto Market Sentiment Is Dropping
After losing 12% last week, Bitcoin continued to trade below $9,000 this week until today, when the price went to $9,200.
This has been in complete contrast with the equities market that rose 3% and this week it topped 3,000 which is linked to either the optimism over a vaccination or the re-opening of the economy. Dow Jones Industrial Average is also testing 25,000.
The “real” reason for this growth in the stock market according to analyst Mati Greenspan is “optimism on the Fed printing an unlimited amount of money in order to protect investors from falling prices.” Bitcoin is acting as “an uncorrelated asset class,” but according to Arca’s David Nage,
“Uncorrelated is great, but untethered is even better. And as I see it, digital assets are completely untethered to anything going on in traditional finance.”
Last weekend, we saw the implied volatility of bitcoin dropping to intra-month lows unlike what we have seen during weekends and American holidays when digital assets have exhibited high volatility.
Also, the Chinese Yuan is back to its all-time lows against the US Dollar. This event last year “contributed greatly” to a rise in the price of bitcoin and then the subsequent fall. This time, however, it is having no effect on bitcoin, notes Jeff Dorman, Chief Investment Officer at Arca.
As a matter of fact, retail investors are pouring into other small-cap digital assets as several small-cap digital assets continue to gain significantly despite new institutional investors' entering the bitcoin market via the CME. Usually, altcoins outperform bitcoin during bull markets but since last week the world’s leading digital asset has been not faring well.
This randomness however, is not uncommon for an uncorrelated asset class.
Market sentiment turning fearful
The market action currently is boring but actually bitcoin isn’t volatile always. Bitcoin is exactly 53% of days volatile in comparison to 61% for crude oil.
“Bitcoin had an absolute daily return of less than 2% more than half the days over the last year,” as per Skew Markets.
And currently, the bears for bitcoin is strong, according to trader Jonny Moe.
He also noted that Bitcoin reported the lowest daily rate of change in March since 2013 at a minus 44. The breakdown of February 2018 got close to it but has been a good distance away at a minus 34.
Now, in May, the price range bitcoin is fluctuating in is getting tighter with the flagship cryptocurrency hovering around $9,000.
From “Extreme Fear” in March, the market sentiments recovered in May turning to first neutral then greed on a scale of 1-100, as per Crypto Fear and Greed Index. But as we progress forward, the market is also yet again tumbling in fear.