Technical Indicators Suggest Market Oversold, Say Analysts
As Bitcoin rebounded slightly on Tuesday, analysts predict that the cryptocurrency market may be nearing its bottom and poised for significant gains soon.
On Monday, major cryptocurrencies faced a sharp decline, with Ethereum dropping by over 20% and Bitcoin by 11%. The derivatives market experienced a substantial liquidation of $827 million, including nearly $720 million in long orders. According to data from Alternative.me, the market panic index has plummeted to 26, indicating a state of “panic.” Several factors contributed to the flash crash and bearish market sentiment. Bitcoin reached a near six-month low of $49,445 on Monday.
“Judging from historical trends in the crypto market, before the market forms a true bullish drive, it needs to experience a sharp decline to reduce the long positions of the contract in order to reduce the selling pressure for future rises. This is a key factor in the rapid rise of the market. Observers can continue to pay attention to changes in the macro market, including the panic index indicators. At present, the core key to affecting the market trend is the sentiment index. If VXX starts to fall, it means that the panic sentiment has eased,” said Gracy Chen, CEO at Bitget.
Ongoing concerns about the defunct crypto exchange Mt.Gox repaying its creditors and Jump Crypto potentially liquidating hundreds of millions of dollars worth of crypto positions, particularly Ethereum, have further fueled the sell-off in crypto markets.
“Technical indicators, however, are now showing as oversold, and the Crypto Fear and Greed Index is flashing ‘Fear,’ which is usually a sign of a bottoming of the price. So, it is possible we could see a rebound from here over the coming days. As to how high the price will rebound, we have to wait and see,” said Simon Peters, Crypto analyst at eToro.
Shivam Thakral, CEO of Buyucoin, India’s second-longest-running digital asset exchange, stated, “The global crypto market has witnessed a significant shift, with a market cap of $1.89 trillion reflecting a 12.29% decrease over the last day. However, Bitcoin has dropped below $50,000. Its dominance has slightly increased to 56.56%, indicating resilience amid the market volatility. The recent decline in Bitcoin’s price is due to a hike in interest rates by central banks around the world, geopolitical tension in the Middle East, and concerns related to the US economy, which have affected investor sentiment. However, Bitcoin’s strong market presence reflects that there is potential for recovery and growth as market conditions stabilize.”
The broad market selloff, driven by recession fears, has led to capital being reallocated away from higher-risk assets, with digital currencies still largely perceived as such, according to Binance. This trend has been exacerbated by recent developments in the U.S. presidential race, which some market participants view as potentially less favorable to cryptocurrencies as an asset class. Additionally, the summer months have historically been slower for the crypto market, often yielding smaller returns. These seasonal dynamics may also be influencing the current market situation.
“Despite these challenges, we do not view this as indicative of a long-term negative trend for the crypto market. The Federal Reserve is expected to cut interest rates in September, which should improve the outlook for the US economy. Moreover, with the presidential election still some time away, there remains significant potential for market fluctuations. As the election approaches, we are likely to witness market impacts in both directions as candidates clarify their stances on cryptocurrencies,” said Binance CEO Richard Teng.
As the crypto market navigates through these turbulent times, investors and analysts alike will be closely monitoring the sentiment and technical indicators, hoping for signs of a sustainable recovery.
