Research report outlines why the crypto market might be on the verge of a reversal

As November begins, analysts are busy studying the major market movements that occurred in October. While Bitcoin (BTC) remained relatively flat with only a 5.89% gain in October, Arcane Research Senior Analyst Vetl Lunde outlined the direction the market could be heading in the next few months.

“Uptober,” a reference to Bitcoin’s bullish historic performance in the month of October, was a common theme in many cryptocurrency Twitter threads, and according to Lunde, it appears to have happened. The data shows that BTC and the exchange’s tokens outperformed the large-cap index through October 26.

Elon Musk’s takeover of Twitter helped propel the large-cap index above Bitcoin with a staggering 20% ​​monthly gain. Dogecoin (DOGE) helped consolidate the large-cap strength, posting a 144% gain over the past seven days.

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

October’s Bitcoin spot market was driven by increased volume and lower volatility, while benefiting from short pressure that briefly boosted the market. According to Lunde, the last week of October saw the largest amount of short-term liquidation in cryptocurrencies since July 26, 2021.

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While this action helped boost Bitcoin by 6%, Ether (ETH) and Binance Coin (BNB) saw more significant increases of 18% and 19% respectively.

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

The short squeeze helped provide an overall boost, but Lunde concluded that the momentum did not lead to a significant change in BTC’s price. BTC spot volume is up 46% over the past seven days, and the 30-day volatility index is at a 2-year low. In addition, the 7-day volatility index is 2.2%, while the annual average is 3%.

BTC 30-day and 7-day volatility. Source: Arcane Research

Comparing the volatility from the previous short to the recent short, Lunde said:

“The July 26 decline resulted in daily highs and lows of 15% as markets rushed higher, while October 25th and October 26th saw daily highs and lows of 5% and 6%, respectively. Additionally, the momentum has stalled, indicating that traders should prepare for a longer consolidation.”

While the price of Bitcoin is attractive, the best approach to this market is dollar cost averaging in the short term, rather than leveraging, according to Lunde. Bitcoin has experienced uniquely low volatility and closely follows the US stock market, making it important to track Q3 earnings reports.

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Fed policy will continue to dictate the price of Bitcoin

Federal Reserve Chairman Jerome Powell is set to speak after the November 2nd Federal Open Market Committee (FOMC) meeting on US monetary policy, inflation and expected rate hikes.

According to Lunde, there are two scenarios to consider:

“Scenario 1: Jerome Powell remains bullish on inflation and sets the market up for further gains. This is the most likely scenario in my opinion. In this environment, I expect correlations between BTC and other asset classes to remain elevated and now a 4.5 month long trading range to maintain stable performance, with reduced activity providing a longer-term suitable environment for coil storage.

“Scenario 2: Jerome Powell hints at a subtle turn. In this scenario, I see the correlated market environment softening. Last week, we saw unique structural crypto-related market activity cause correlations to decline with a significant short squeeze. Angle forecasts lead to similar reactions and bring BTC’s digital gold narrative to life.”

Under the second scenario, some analysts believe that cryptocurrencies could begin to decouple from US stocks. This reaction could mirror the reaction of the cryptocurrency market in mid-2020, which pushed the price of Bitcoin above $20,000.

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What to expect in the long run

In the longer term, Lunde predicts that the adoption of Bitcoin and digital assets will continue to be an emerging trend. Pointing to a Fidelity survey that indicated increased interest from institutional markets in 2022, Lunde remains bullish on BTC at the current price.

Although there are fewer transactions on the Bitcoin chain, greater participation is possible in the long run from clearer regulation. A clearer framework could eventually emerge if US voters begin to consider cryptocurrency policy when voting.

Bitcoin’s muted growth, its correlation with stocks and its constant decline for almost a year remain a threat, but many analysts believe that Bitcoin’s current price is undervalued.