The index, which ranges from 0 for Extreme Fear to 100 for Extreme Greed now sits around 28, suggesting that traders may be a touch too bearish.- With bitcoin hovering around the US$50,000 level, some traders have made an argument that the benchmark cryptocurrency may have been oversold.
First, it was US$10,000, then US$20,000, now US$50,000 appears to be a key psychological level of resistance and support for bitcoin traders, whether you’re a bull or a bear.
For now, the bears appear to have the upper hand with bitcoin failing to keep its head over US$50,000, declining for the first time five trading sessions amidst a general risk-off sentiment in markets that has seen cryptocurrency prices slip.
Chart watchers will note that it appears as if bitcoin is now caught in technical purgatory, between moving averages with no discernible pattern over what happens next.
Although bitcoin is forming what’s known by technical traders as a “head-and-shoulders” pattern, a classic bearish formation, the last time this happened in 2017, bitcoin also soared to a fresh new high of close to US$20,000.
Bitcoin plunged swiftly last Saturday, falling by over 20% in the span of a few hours, in a “flash crash” that has become increasingly common for the cryptocurrency, where derivatives can cause a cascading series of forced liquidations.
It’s estimated that around 4,000 bitcoins were sold over a short period of time on Saturday, amounting to just US$280 million at the time, but that resulted in over US$600 million in liquidations.
Given that bitcoin’s total market cap is in the region of US$1 trillion, a sale of that magnitude ought not to have riled markets so much, but weekend markets for cryptocurrencies are notoriously thinner, with much of the trading left to bots while their human comptrollers head off to enjoy a brief respite.
And that contributed to the cascading liquidations and margin calls which saw the sharp selloff.
Heading into the week though, bitcoin rapidly entered oversold territory and recovered sharply to over US$50,000, hitting as high as US$51,000 before pulling back again.
With bitcoin increasingly attracting interest from more mainstream financial players and institutions, the arrival of an albeit futures-backed U.S. bitcoin ETF, a key macro event on the horizon could help shape up how bitcoin finishes 2021, in what has been an otherwise stellar year for the cryptocurrency.
The U.S. Federal Reserve is due to meet in less than a week, where expectations are high that policymakers will accelerate the tapering of asset purchases, bringing forward their end as early as March next year.
That move would pave the way for a potential interest rate increase by June next year, which many analysts see as being a bearish outcome for risk assets in general, which would encompass bitcoin.
Bitcoin bulls however remain unperturbed, with many, including Mike McGlone at Bloomberg Intelligence, noting that the cryptocurrency is a risk asset that is slowly evolving into a digital reserve asset, which should have positive implications for its price.
McGlone estimates that bitcoin could reach as high as US$100,000 next year, but that short term volatility can be expected to stay.
