Research Report Outlines Why The Crypto Market Might Be On The Verge Of A Reversal

In early November, analysts are busy analyzing the main market movements that occurred in October. While Bitcoin (BTC) was relatively stable in October, climbing just 5.89%, Arcane Research Senior Analyst Wettle Lunde outlined the direction the market could move in the coming months.

“Uptober,” a reference to Bitcoin’s historic October bull run, has been a common theme in many Crypto Twitter threads, and according to Lunde, it looks like it has happened again. The data shows that BTC and tokens outperformed the core cap index through October 26th.

Elon Musk's acquisition of Twitter helped propel the Large Cap Index above Bitcoin with a staggering 20% ​​monthly gain. Dogecoin (DOGE) has helped shore up large capitalization with a 144% gain over the past seven days.

In October, the bitcoin spot market was supported by higher volume and lower volatility while benefiting from a brief downturn that briefly supported the market. According to Lunde, the last week of October saw the highest volume of short cryptocurrency liquidations since July 26, 2021.

While this activity helped lift Bitcoin by 6%, Ether (ETH) and BNB (BNB) saw more substantial gains of 18% and 19% respectively.

The short squeeze helped drive the overall rally, but Lunde concluded that the rally did not materially change the price of BTC. BTC spot volume is up 46% in the last seven days and the 30-day volatility index is at a two-year low. At the same time, the seven-day volatility index is 2.2%, and the average annual one is 3%.

Comparing the volatility of the previous short crisis to the recent short crisis, Lunde said:

“The July 26 squeeze saw 15% daily highs and lows as markets consolidated, while the October 25 and 26 moves saw daily highs and lows of 5% and 6% respectively. In addition, the momentum has weakened, indicating that traders should brace for a longer consolidation.

While the price of bitcoin is attractive, Lunde said the best approach to this market is short-term dollar averaging rather than leverage. Bitcoin exhibits exceptionally low volatility and is closely following the US stock market, so it is important to keep an eye on Q3 earnings reports.

Fed policy will continue to dictate the price of bitcoin

Federal Reserve Chairman Jerome Powell will speak after the November 2 meeting of the Federal Open Market Committee on US monetary policy, inflation and the upcoming interest rate hike.

According to Lunde, two scenarios need to be considered.

“Scenario 1: Jerome Powell stays on top of inflation and prepares the market for further growth. This is, in my opinion, the most likely scenario. Under these conditions, I expect the correlation between BTC and other asset classes to remain elevated, with the current 4.5-month trading range continuing and activity declining, creating a more favorable environment for the stack. Satoshi".

Scenario 2: Jerome Powell gives subtle hints of a reversal. In this scenario, I see a weakening of the correlated market environment. Last week we saw how the uniquely structured market activity around cryptocurrencies led to a drop in correlation due to a large short position. Waiting for a reversal will lead to similar reactions and resurrect the history of BTC digital gold.

Based on the second scenario, some analysts believe that the cryptocurrency could start to underperform US stocks. This reaction may reflect the reaction of the crypto market in mid-2020 when the price of bitcoin topped $20,000.

What to expect in the long term?

In the long term, Lunde predicts that the adoption of digital assets and bitcoin will continue to be a growing trend. Pointing to a Fidelity survey showing increased interest from institutional markets in 2022, Lund remains optimistic about BTC at the current price.

Although Bitcoin records fewer transactions on the network, more participation is possible in the long run thanks to a clearer regulatory framework. A clearer structure could eventually emerge if the U.S. electorate starts taking crypto politics into account when voting.

Bitcoin's moderate rally, its correlation with stocks, and nearly a year of steady downtrend remain a threat, but many analysts believe that Bitcoin's current price is undervalued.