The cryptocurrency market experienced significant declines this past week, with Ethereum, Ripple, Binance Coin (BNB), and Cardano dropping by over 12%. This has notably dampened investors’ risk appetite. However, some indicators suggest that the downtrend might be nearing its end, with data measuring market psychology and technical indicators laying the ground for potential recovery.
Fear and Greed Index Signals Both Alarm and Hope
The Fear and Greed Index, a closely monitored market sentiment measure, plunged to its lowest level of the year at 10, indicating peak fear in the market. Historical data reveals that such high fear levels often preceded upward trends, particularly in Bitcoin’s past rallies. For instance, in May of this year, Bitcoin reached a record high just weeks after the index lingered in the “extreme fear” zone.
Similarly, the Relative Strength Index (RSI) for the total cryptocurrency market dropped to 24, signaling that the market has entered the oversold territory. It is believed that the period of negative divergence since July is coming to a close. Technical analysts claim that a “double bottom” pattern could form in Bitcoin and altcoins, setting the stage for a robust recovery.
Futures Market Cleanup Eases Tensions
A cleanup process in the markets is gradually continuing. According to CoinGlass, the size of open positions in futures has shrunk from $320 billion to $123 billion. This pullback suggests that investors are using less leverage, steering towards a healthier market structure. Liquidations exceeding $40 billion since October 10th further confirm the removal of weak positions.
This reduction in leveraged trading volume implies more stable price movements in the long term. A similar process unfolded after the LUNA collapse in 2022, leading to a robust market recovery within months. This suggests that the current liquidation cycle might pave the way for a new bullish phase.
However, market dynamics are not solely dictated by technical indicators. The potential for a Federal Reserve rate cut in 2025, the growth in global M2 money supply, and an accelerated process in altcoin ETF applications suggest the potential for capital to flow back into risky assets. The U.S. Securities and Exchange Commission (SEC) considering a new Solana ETF application further strengthens this expectation.
Approaching Market Turning Point
In summary, although caution remains the overarching sentiment, both technical indicators and macroeconomic signals suggest an approaching market turning point. While claiming the end of the downtrend might be premature, the likelihood of a recovery post-extreme fear periods, as seen in past cycles, is growing. Nevertheless, it’s crucial for investors to remain aware of the potential for continued short-term volatility.