The market is bleeding… – While the macroeconomic context is still not encouraging, like inflation which is continuing, cryptocurrencies are experiencing a purge period. Since the top last November, bitcoin has fallen more than 60%. it’s about the first cryptocurrency in terms of capitalization. The fall of altcoins is 90% and even more for some… Many analysts believe that we have entered a bear market, in the short and medium term. In this article, we will try to answer the following question: have the actors capitulated? For this, we will analyze the technique, the market sentiment and look at the behavior of the actors on the blockchain.
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An endless road: Bitcoin continues 7 weeks in the red
This is unheard of. Bitcoin is going through a very complicated period, not helped by the recent UST affair. The market faced strong sales since the Luna Foundation Guard had to sell its 80,000 BTC at a loss. This is a non-negligible quantity, for comparison Microstrategy has 130,000 bitcoins.
From a technical point of view, the real capitulation as we experienced it in 2018 brings the price back to the level of the moving average 200 periods (MA 200) in weekly time unit. As the name suggests, a moving average is simply a price average over n periods. Here is the weekly Bitcoin chart:
As we can see, the moving average has acted as ultimate support during previous bearmarket (bear markets). Bitcoin is getting close to it, but the price has not yet touched the MA 200. Currently, it is at $21,800 and it goes up from week to week. Given the current context, it seems unlikely that the price will not revisit this moving average. In addition, professional players are watching this MA 200 carefully.
If the sell-off continues, bitcoin is likely to recover at around $22,000. On the other hand, if the buyers manage to defend the bracket at $29,000the moving average could continue to rise until it comes close to the current price.
From a technical point of view, for the moment, there is no real capitulation.
Market sentiment is bearish, does it look like capitulation?
Market sentiment is very interesting to analyze. It allows to know if the actors are euphoric or in the fear. With a view to capitulation, the actors must be in a extreme fear. This is how the traditional market works and the cryptocurrency market is no exception to this rule. For this, we can look at indicators that show market sentiment.
Crypto Fear and Greed: the market is in extreme fear
As seen on the chart, market sentiment is currently at a low. We have already experienced this kind of panic, especially during the Covid crash of 2020, last May and on other occasions. It is not on this chart that you have to decide whether to buy or sell, but it allows you to know if the players are at an extreme. Periods of extreme fear are often interesting shopping locations and periods of euphoria are often attractive sales locations.
The indicator is not perfect. Indeed, he can remain in euphoria or in fear for several months. Currently, the indicator is in extreme fear, at 10 dots.
The Fear and Greed Index of the US market is also in extreme fear
It is often repeated, the cryptocurrency market is highly correlated to the US market. This one knows a slump these last months. Market sentiment is very low and very close to the covid crash period:
The indicator pointed to 1 during the covid crash. He is currently at 6 and shows general fear in US financial markets. Again, we can still dig, but it seems that the worst may be over. A recovering US market would be positive for cryptocurrencies given the current correlation.
Market sentiment indicator: the weighted sentiment indicator
Another indicator shows the market sentiment of the players. This is the indicator developed by Santiment, called weighted feeling. He studies the keywords used on social networks to classify them according to their connotation. Here is the graph:
This graph shows differences with the previous one. It would seem (according to this indicator), for the moment, that the market has not not capitulated. A surrender shows extreme fear with a very low (pink) feeling. The indicator is smoothed over 5 daysso it is normal that it is a little late. We stay very far from a capitulation as we experienced in March 2020 or July 2021.
Imagine that bitcoin stays close to $30,000 for several weeks or months. The indicator should then drop drastically. The fact remains that, for the moment, surrender is not present if we follow this indicator which has been historically relevant.
The Crypto Fear and Greed is in extreme fear, like that of the US markets, but they can stay in an extreme for a long time. The Santiment site indicator shows that the market can still purge, or that we can stay close to current prices for a long time. In any case, we cannot speak of capitulation as was the case in March 2020.
On-chain analysis: players are in losses on Bitcoin, but it could get worse?
To begin with, on-chain analysis makes it possible to account for the behavior of actors at the blockchain level. Some indicators can be interesting to look at to talk about capitulation. The following indicator makes it possible to account for the losses of market players:
The result is without appeal. The actors know heavy losses now. Since the price fell last May, players have regularly experienced heavy losses. Current levels are higher than during the covid crash and equivalent to those of last May. We can talk about capitulation on this data although the losses may still increase.
Another piece of data may be interesting to look at. It’s about realized price. It’s about ratio between realized capitalization (who filters inactive tokens on the blockchain) and outstanding offer.
This graph shows that there is no capitulation as we experienced in March 2020 or in January 2019. By studying the indicator, historically, a capitulation occurs when the Bitcoin price goes below the realized price. Currently it is located approximately $24,000. It is quite imaginable to see the price of Bitcoin drop below the $24,000 according to this indicator.
Historically, the realized price does not play the role of support as it did with the 200-period moving average, but it shows a price below which Bitcoin is undervalued.
In the end, we can say that the market is in extreme fear, and that, you suspected. This is a period that is historically interesting to average down a DCA. Even if the actors are losing a lot of money, certain elements suggest that the capitulation is not yet in the news. We have seen that the 200-period moving average is found even lower, as the realized price. Market sentiment is certainly low, but it can still widen. We cannot know if the market will necessarily seek this capitulation or if “this time, it’s different”.
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