If the fragility of the current global context remains indisputable, the stock market context is significantly different. Stock market indices, particularly in Europe, are showing signs of a medium-term exit from the decline observed. And although this signal is relatively encouraging, it cannot justify taking unnecessary risks. This is why it is important to grasp the risks associated with a market that is more volatile on the upside than the reverse… In October, the price of bitcoin marked a rebound of +5.5%. This rebound is continuing and has now reached nearly +4% since November 1. A detailed reading of the market context on cryptocurrencies will make it possible to account for the forces present.
In our previous post we discussed the bitcoin setup in mid-October. In particular, we specified that it was reasonably possible “hope bitcoin price will pick up in the next few weeks”. Read more: Statistical point on bitcoin (BTC) – Tremplin.io. In this context, we looked in detail at the statistical configurations that have appeared in recent weeks on cryptocurrencies…
The cryptocurrency market on the recovery…
In the space of six weeks, the price of bitcoin (BTC) will have climbed by a dozen percent. However, this increase is no more surprising than in other markets. The performance of the CAC 40 over the last six weeks is quite comparable. The American indices also showed, at least for the Dow Jones, a relatively identical rebound.
For its part, the US market volatility index (the VIX) fell back below 30 to settle at 24.5. We are clearly witnessing a relaxation among many investors. Yet, apart from the better US GDP figures, nothing disposed investors to shake off their pessimism. Because it is still difficult for the time being to speak of optimism on the market. The sellers are still present and the recent rise in the markets has been in low volumes. So, this is more of a temporary or lasting exit from the bear market than the impetus of a new bull market.
As of September 1, several elements wanted to show that bitcoin was significantly less exposed to downside risks. Read more: Bitcoin (BTC) facing more moderate downside risks? – Tremplin.io. So, in recent months, we have witnessed a real change in the psychology of investors. In this context, it is important to decipher the real historical forces at work in a price movement whose stakes for the future are great…
Towards exceptional variations?
Among the statistical signals, we can mention the variations of bitcoin. We had previously shown that bitcoin (BTC) has been subject in recent months to “a greater recurrence of consecutive weeks of decline”. Consequently, one might expect “A continuation of the decline in the coming weeks, without stopping, would be of low probability”. Indeed, as shown by the distribution graph of bitcoin variations, the bear market initiated since 2022 seems to have dominated the frequency of variations observed since January 2020.
The daily variation of the BTC recorded on Friday November 4 amounts to almost +4.63%. The frequency (probability) of occurrence of this type of variation since January 2020 is close to 4%. Extreme variations generally make it possible to stimulate sufficiently large bull markets. However, we must clarify, from a historical point of view, that this variation is not enough to increase the probability of a bull market in bitcoin. Indeed, analysts should keep several things in mind.
- The daily volatility of bitcoin (January 2022-November 2022) is 4.33%. Clearly, variations close to +4% or -4% are not “exceptional” for bitcoin. These are almost “normal” values for the course of cryptocurrency.
- A variation “exceptional” capable of turning the market around is a variation that is rare enough to surprise investors. In the case of bitcoin, a variation in the top 1% of the highest variations is a variation greater than +10.2%.
Moreover, another favorable element occurs with the return of the average value of variations above 0. This would clearly reflect an exit from the bear market.
An imminent future signal… or improbable?
In the continuity of what we have just written, putting our remarks into practice is not without interest. We have seen that an exceptional variation was a variation close to or greater than (+) or (-) 10%. This variation was also able to drive a market movement. In the graph below we have compared the price of bitcoin with the dates (vertical lines) associated with exceptional variations. Note that exceptional variations, whether bullish (green) or bearish (red), are most often the cause of trend breaks. The exceptional variation to date, that of the session of September 9, 2022, seems to have marked the first break in the bear market.
In addition, the bull market of 2021 was previously driven by 5 successive exceptional variations from the crash of 2020. The longer a trend takes to build, the more the signals are recurring, the more violent the final break will be.
In this context, entering a real bull market would once again require several exceptional variations. By this we therefore mean sufficiently large variations (as suggested above) capable of driving a reorientation of the psychology of the market. These variations are all the more strategic in that they occur at market inflection points. The average occurrence of these variations is approximately every 5 to 7 weeks. An extreme change in bitcoin in the coming weeks would not be unexpected…
But the relative value of bitcoin is falling again…
Despite all the benefits of a gradual exit from the bear market, the market itself presents some interesting signals. Indeed, the total (worldwide) capitalization of the cryptocurrency market has risen above 1,000 billion dollars. For the moment, we are witnessing no significant recovery in volumes. That is to say that the current rise in the markets was made without buyer support. We are instead witnessing a kind of capitulation, albeit moderate, on the part of sellers.
But we have to keep in mind that this rebound benefits some cryptocurrencies more than others. In recent weeks, the capitalization of USD Coin has become lower than that of BNB. The fact that utility cryptocurrencies rebounded more significantly than the stablecoins that had dominated the bear market until then is worth highlighting. In the graph opposite, we have represented the evolution of the bitcoin/ethereum ratio since January 2020.
The ratio of bitcoin price to ethereum price exceeded 50 in early 2020. The bull market through mid-2021 marked a sharp drop in bitcoin’s relative value. This ratio falling to 15 in mid-2021 (-70%). With the arrival of the bear market, the relative value of bitcoin against ethereum has stabilized. But the market’s recent rebound once again seems to confirm the long-term trend.
Once again, bull markets are rather unfavorable to the relative value of ethereum. In addition, these movements are rather built on medium-sized, even small cryptocurrencies…
The return of “small” caps?
The end of the exacerbated pessimism on the markets seems to benefit mid-caps. For example, within a month, the price of the CHSB increased by +70%. The cryptocurrency of the SwissBorg exchange platform, in the top 150 global cryptocurrencies, has thus exceeded a heavy short-term downtrend. The evolution of the CHSB/BTC ratio shows, for example, the return of the performance of intermediate capitalizations on the cryptocurrency market.
In addition, this rebound is significantly more significant on other cryptocurrencies. In particular, we see that the most volatile and speculative cryptocurrencies such as the DOGE Coin rebound the most. The latter has almost tripled in one month! The relative value of DOGE against bitcoin (BTC) also outperformed quite remarkably. But this move is extremely, and totally, speculative. It comes after the takeover of Twitter by Elon Musk and translates (unfortunately or not) hopes of a future speculative bubble.
Finally, the strengthening of intermediate capitalizations translates symmetrically into the weakening of stable coins. In fact, stablecoins played the central role of true “safe haven” stabilizers during the bear market.
In conclusion
Ultimately, we’ve seen bitcoin’s recent rebound more or less observed in most markets. Thus, the performance of bitcoin in recent weeks is quite comparable to that of traditional indices. In recent weeks, we have witnessed the release of an anchored pessimism among many investors. Indeed, since September, the statistical and fundamental signals have multiplied in the direction of this reading. The recent market rally is also encouraging slightly larger movements. The study of the variations of the bitcoin shows that the latter could really come out of a bear market with the help of exceptional variations.
The presence of variations close to or greater than (less than) plus (or minus) 10% would thus make it possible to initiate a real reversal in investor psychology. Consequently, the current variations, although notable, are not sufficient to confirm that the trend has actually reversed on the market. The next few weeks, and especially the next few months, will be decisive. However, here again, the return of a short-term bull market seems to confirm trends that will persist in the future. With the general market rebound, the relative value of bitcoin has declined.
The rise in the market is all the more profitable for cryptocurrencies with an intermediate capitalization like SwissBorg. But we can also talk about more speculative cryptocurrencies like DOGE Coin whose performance has been significant. If investors are not yet interested enough, one thing is certain: speculators have stayed…
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