Market sentiment dips as macroenomic factors continue to weigh heavily on investor attitude.
2 min read
Updated: May 9, 2022 at 11:23 am
Cover art/illustration via CryptoSlate
The Fear and Greed Index fell to 11 on May 9 after the latest crypto market sell-off, representing a 7-point drop from May 8 and placing sentiment firmly within ‘extreme fear’ territory.
The Fear and Greed Index is compiled using five types of data sources with varying degrees of weighting. Volatility and market momentum/volume make up the most significant weightings, at 25% each. But other data sources include social media, surveys, Bitcoin (BTC) dominance, and trends.
The market sentiment reflects the overall attitude or feeling towards a particular asset or financial market. As sentiment influences technical indicators, traders and analysts can use it to gauge short-term price movements.
With the majority of 2022 spent moving between fear and extreme fear, is it now time to accept the bear market is here?
Brace for a downturn
January 23, 2022, was the last time crypto market sentiment was this low. This period was characterized by a general slump in macroeconomic sentiment bought on by a slide in global stocks.
Four months on, and the narrative remains the same, if not worse, given that the Fed has followed through with talk of cooling the economy by raising rates twice this year. The first on March 16 and the last on May 4.
With no sign of inflation coming under control, the Fed will likely continue to raise rates, the upshot being less liquidity in the market. More so for risky assets, including cryptocurrencies.
Is crypto winter here already?
Crypto winter refers to a prolonged period of falling prices. The previous bear market began in early 2018, following Bitcoin’s spike to $20,000. After an 85% drop to bottom at $3,100, the bear market ended in December 2020 after re-reaching $20,000.
The market leader, Bitcoin, has been trending downwards since hitting its all-time high of $69,000 in early November 2021. The Crypto Lark points out Bitcoin has closed its sixth weekly consecutive red candle, which has not happened since 2014.
Price volatility has hinted at the possibility that crypto winter is here already. And almost halfway into 2022, it’s increasingly difficult to build a bull case.
In a recent tweet, Rekt Capital, although far from calling this downturn a bear market, implied that further drops might be on the cards.
You survived the -84.5% #BTC Bear Market
You survived the -63% $BTC crash in March 2020
You survived the -53% BTC crash in May 2021
You’ll survive this crash as well#Crypto #Bitcoin
— Rekt Capital (@rektcapital) May 8, 2022
These indicators show how the equities sell-off is influencing crypto prices to fall down
Bitcoin · Ethereum › Analysis
US Equities correlations with cryptocurrencies is at an historic peak while most BTC holders are holding at a loss
3 min read
Updated: May 20, 2022 at 4:05 am
Cover art/illustration via CryptoSlate
Cryptocurrencies experienced on May 10 a large market crash, losing over 10% in a single day of most of the coins. This is the second time in 2022 that most cryptocurrencies have suffered a price loss of over 10%. Over the last month, BTC has accumulated a 23.57% loss while Ethereum has a 26.32%. Meanwhile, US equities suffered slightly more moderated losses: S&P 500 a -11.07% while Nasdaq 100 a -14.93%:
As seen in the chart above, cryptocurrencies continue experiencing worse sell-offs than capital markets. The actual macro context of rising interest rates leads to most investors becoming averse to risky assets, which cryptocurrencies are due to their nature of highly volatile price performance.
The origins of the May 10 price drop came from US equities markets turning back on their short-lived recovery of last week. As has been seen in the previous months, the 30-day correlation between the cryptocurrencies markets and US equities indexes continues to grow, and this week achieved an all-time high for both BTC and ETH, with around 0.9 points both for S&P 500 or Nasdaq 100:
A correlation coefficient close to 1 implies a strong positive correlation between the two prices, meaning that the price of BTC or ETH and these indices have a highly statistically significant relationship, so they will tend to move in the same direction. Understanding how these relationships evolve is essential to understanding how macro markets affect the cryptocurrency market and where to look for leading indicators of crypto price movements.
It is valuable to look internally at how crypto holders are reacting to the recent price moves despite external factors. Bitcoin continues dominating the crypto market, so it is worth looking at what its on-chain data shows us.
As studied before, investors are sensitive to react when their investments turn around and stop being in a profiting position. BTC is recently reaching a critical position, where almost half (47.8%) of the addresses holding BTC would be losing money if they would sell at current prices. This is something not seen since the Covid crash of March 2020:
This indicator that provides the variation of holders’ profits over time also shows the percentage of addresses that would have made money or lost money if they had sold at a particular time. Addresses are classified based on if they are profiting (in the money), breaking even (at the money), or losing money (out of the money).
Addresses are a good approximation to single investors, although there is always a chance that a small minority of users are using several addresses. If we look at how long the BTC investors have been holding, we can see that the vast majority (26.74M addresses) have been holding BTC for more than a year. A metric with no signs of slowing down so far (blue line):
This depicts how the amount of BTC holders with a long-term perspective grows despite the recent market turmoil and crypto’s weak price performance. It is quite the opposite for short-term holders (classified as Traders, orange line in the chart): their number increases when significant price movements occur, and speculation fuels the whole ecosystem.
After the worst start of the year for US equities in 83 years, it remains open to question if the current market situation could be presenting an attractive buying opportunity for those looking to the long term. Crypto’s next price moves will undoubtedly be heavily influenced by what US equities do, although so far, at least the majority of BTC holders remain unfazed.
Zcash [ZEC]: Breaking down the potential effects of the current bearish structure
As the basis line (green) of the Bollinger Bands (BB) constricted the revival attempts for nearly seven weeks, Zcash [ZEC] bears pulled the altcoin down to yearly lows last week. The basis line has crippled the buyers’ ability to sustain a close near the upper band of the BB.
With the current rising wedge setup being solid, a recovery toward the $113-level could see a slowdown. At press time, ZEC traded at $103.9, down by 2.63% in the last 24 hours.
ZEC Daily Chart
Since its multi-month April highs, ZEC bears have persistently steered the price south after propelling an up-channel breakdown. On its way down, the price action underwent strong liquidations whilst the basis line of the BB constricted the bullish comebacks.
Consequently, the alt was down by nearly 67.42% (from 28 Mar) and dropped to hit its 16-month low on 12 May. After the $83-baseline posed some hurdles for the sellers, the bulls quickly provoked a short-term string of green candles. After forming a morning star candlestick pattern, the altcoin continued its oscillation in a bearish rising wedge.
A continued trajectory in the current pattern could face strong barriers in the $113-zone. This area represented a host of barriers that includes the upper fence of the Pitchfork, the 38.2% Fiboancci resistance. Any reversal from this zone could result in a breakout from the wedge and find testing grounds in the $96-zone. In an unlikely event of invalidating the strong bearish tendencies, any close above the $113-level could test the $126-level.
The Relative Strength Index depicted a gradual uptrend from its oversold lows. As far as the 41-support stood strong, the buyers still had conceivable means to stall the near-term liquidations. But with the -DI line looking north, keeping a check on the selling pressure could be a menacing task for the bulls.
In light of the confluence of multiple hurdles in the $113-zone, ZEC could see a short-term pullback. Any close below the wedge could result in a pathway to its $96-zone lows. To alter the existing narrative, the bulls have to find a spot beyond its Pitchfork and the 38.2% level.
Finally, keeping an eye on Bitcoin’s movement and the broader sentiment would be important to complement the aforementioned analysis.
Polkadot: Why DOT can be expected to lead the upcoming bull run
Polkadot’s native cryptocurrency DOT has so far managed to remain on the list of top 20 cryptocurrencies by market cap. The latest market events have forced investors to re-evaluate their portfolios in favor of digital currencies that have strong fundamentals, but does DOT fit these criteria?
Polkadot’s multi-chain approach can provide better insights into whether investors consider DOT to be worth having in their portfolio. It announced that interoperability and multi-chain as the future of blockchains are among the key areas of focus during the WEF22 conference on 16 May.
Polkadot’s ecosystem has been growing rapidly as it continues to onboard more projects through para-chain auctions. While this approach bolsters the interoperability agenda, it also boosts organic demand for DOT from projects running as parachains. The para-chain approach allows the community to support projects that align with Polkado’s values and can provide value to the ecosystem.
DOT’s price action and on-chain metrics
Although DOT is slated to leverage organic growth as the Polkadot ecosystem continues growing, it is also heavily correlated with Bitcoin. It struggled to maintain a healthy recovery after last week’s market crash in which it bottomed out at $7.30. However, it bounced back to $10.07 at the time of writing.
It seems DOT’s recovery is currently limited by low buying volumes. It is currently trading at a 58% discount from its April 2022 top. DOT’s price is also at an 82% discount from its current ATH of $55.09 which it achieved in November 2021.
DOT’s supply held by whales metric registered an uptick between 16 May and 17 May, courtesy of slight accumulation. However, the same metric recorded outflows which have so far pushed back to monthly lows. The metric shows that whales are selling and it reflects the lack of adequate buying volumes and failure to register a significant rally.
DOT’s developer metric achieved a significant uptick and is currently in its highest monthly range. The uptick is due to the recently announced Polkadot which also highlights the network’s commitment to security.
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