Research report on why the crypto market could be at the edge of a reversal

Analysts are busy analyzing the market movements of October as November begins. Although Bitcoin ( BitcoinTC) was relatively stable with only 5.89% growth, Arcane Research senior analyst Vetle Lunde predicted what direction the market would take over the next few months.

“Uptober” refers to Bitcoin’s historical bullish performance in October. This theme was common across many threads on Crypto Twitter. According to Lunde this performance may have occurred again. Data shows that BTC and exchange tokens outperformed large caps indexes up to Oct. 26.

The Twitter takeover by Elon Musk helped propel the large caps index higher than Bitcoin, registering a stunning 20% monthly gain. Dogecoin ( DOGE) contributed to the large-cap strength with a 144% increase in the past seven days.

Performance of the October 2022 weighted index. Source: Arcane Research

The October Bitcoin spot market saw an increase in volume and lower volatility. It also received a brief squeeze, which briefly reenergized the market. According to Lunde the biggest short liquidation volume in crypto was recorded in the last week October since July 26, 2021.

This activity helped to push Bitcoin up by 6 percent, but Ether ( Ethereum) as well as BNB ( BNB), saw greater gains of 18% and 19%, respectively.

7-day average BTC USD daily volume with and without Binance. Source: Arcane Research

Although the short squeeze gave an overall boost to BTC, Lunde said that momentum had not caused a significant change in BTC’s price. The BTC spot volume has increased 46% over the past seven days and the 30-day volatility index is at its lowest level in two years. The seven-day volatility index currently stands at 2.2%, while the average yearly is 3%.

30-Day and 7-Day volatility for BTC. Source: Arcane Research

Lunde stated that volatility from a past short squeeze was comparable to recent short squeeze volatility:

“The July 26 squeeze had a daily high low variation of 15%, as markets rushed up. However, the October 25 and 26 moves saw daily high high-low variations respectively of 5%, and 6%. Additionally, momentum has slowed, which means traders should be prepared for more consolidation.

According to Lunde, Bitcoin is attractively priced. However, it is better to use leverage than to average dollar costs in the short term. Bitcoin has experienced low volatility, and it closely follows the U.S. equity market. It is therefore important to monitor Q3 earnings reports.

The Fed will continue to control Bitcoin prices

After the November 2 Federal Open Market Committee meeting, Jerome Powell, Chairman of the Federal Reserve will speak about U.S. Monetary Policy, Inflation and the upcoming rate rise.

Lunde says there are two scenarios you should be on the lookout for.

“Scenario 1 – Jerome Powell is still adroit in fighting inflation and prepares markets for more hikes. This scenario is my favorite. This environment will see high correlations between BTC, other asset classes, and the now 4.5 month-long trading range to stay firm. With dampened activity, this will create a more favorable environment for stacking sats.

“Scenario 2: Jerome Powell provides subtle pivot hints. This scenario shows me that the correlated market environment is softening. Last week we witnessed how unique crypto-related market activity caused correlations decline through a significant short squeeze. Pivot anticipations are expected to lead to similar reactions, and revive the BTC’s digital-gold narrative.”

Analysts believe that crypto could start to separate from U.S. equities under the second scenario. This could mirror the reaction of the crypto market to pushing the Bitcoin price above $20,000 in mid-2020.

What can we expect long-term?

Lunde predicts that Bitcoin adoption and other digital assets will continue as a growing trend in the long-term. Lunde cites a Fidelity survey which showed an increase of institutional interest in 2022. He remains bullish on Bitcoin at the current price.

Although Bitcoin transactions are declining, it is possible to increase participation in the long-term with a more clear regulatory framework. If the U.S. adopts a clearer regulatory framework, it could lead to a better system. The U.S. electorate should consider crypto policy when voting.

Although Bitcoin’s slow growth, its correlation with equities, and a sticky downtrend of nearly one year remain a threat to investors, many analysts believe that Bitcoin’s current value is still undervalued.

These views and opinions are the author’s and do not necessarily reflect those of You should do your research before making any investment or trading decision.

Opinion writer on 7trade7