Beaten Bitcoin Enthusiasts Begin to Eye a Market Bottom

(Bloomberg) — Buzz is building in crypto investor circles and on Twitter about Bitcoin’s stealth rally in July, which beleaguered investors who are beginning to wonder if the biggest digital asset has found a bottom.

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Yet, given the intensity of boom and bust cycles in the sector, many also remain cautious, unwilling to provide a clear sign given the mercurial nature of digital tokens – even as they see signs emerging. of Bitcoin having found a floor.

That’s because it’s happened so many times before – the coin is posting a monstrous surge that, in hindsight, turns out to have been just a bear market bounce. And making such a call could be even tougher right now given that digital assets have traded all year in tandem with US equities, where there’s a lot of disagreement among strategists over whether the worst of the sale is over.

It’s hard to call a bottom, let alone “with this one because its rally has been so fueled by young people who have never invested in anything before,” said Matt Maley, chief strategist of the market at Miller Tabak + Co. “Crypto is a liquidity asset at the moment, so as long as the Fed tightens, it will be difficult for it to see a sustained rally. Second, the asset class has lost a lot of confidence with investors. investors, it will therefore take time to regain this confidence.

Bitcoin has added around 15% in the past month through Friday, while other tokens including Ether have posted even better returns. Shawn Cruz, chief strategist at TD Ameritrade, says it will take a shift in risk appetite before the coin can begin to rise significantly.

Bitcoin “could probably tread water here for a little while,” Cruz said. “It’s about waiting for risk appetite to turn around.”

Many do just that – watch stocks for a guide map of how things might play out for digital assets. Noelle Acheson, head of market intelligence at cryptocurrency lender Genesis, points to an investor survey by Bank of America that showed gloomy sentiment and potential investor capitulation. Many stock market watchers see the poll as a contrarian signal.

She also looks at something called the “spent production profit ratio” of long-term bitcoin holders, meaning those who have held for at least five months, on average. The reading is currently below 1, which means that even long-term holders are selling at a loss. A drop below that level has always signaled that a bottom is near, she said.

There are many other such analyzes for Bitcoin. The token and its brethren went through “one of the heaviest and fastest downward repricing events in their history,” Glassnode analysts wrote, meaning a ton of excess leverage has already been purged from the system. And for a bottom to be established, investors must experience “a massive capitulation event,” which causes sellers to burn out.

They look at a metric called realized value, which shows the difference between a coin’s value at the time of elimination and at the time of acquisition. It is often considered Bitcoin’s on-chain bid price, they said. Right now, it is showing an unrealized loss of minus 5%, and previous bear markets have also all trended below the realized price.

“Many signals indicate that a true bottom formation may be underway,” Glassnode analysts wrote.

Eternal optimism, however, is a requirement for being a crypto investor. Billionaire fund manager Mike Novogratz recently said that the “worse is over” in the crypto industry, and while some of the recent issues may have heightened retail investor distrust, the case for Bitcoin is always solid. Meanwhile, the industry’s best-known booster, Elon Musk, said his company Tesla Inc. sold off a significant chunk of its Bitcoin holdings, though he said the move shouldn’t be seen as a move. verdict on the play.

For Alex Tapscott, managing director of the digital assets group at Ninepoint Partners, the bottom is there, though he wouldn’t rule out a potential retest of $19,000. Still, “the risk-reward for Bitcoin is heavily biased to the upside,” he said. “For the long-term investor, this is a rare and enticing entry point.”

Whether or not it has bottomed has huge implications for the sector – retail investors tend to be hesitant to buy when the market is down. This cohort could start to gradually return if the idea that a bottom has formed prevails.

Still, it’s a daunting task that qualifies it as final, and not everything signals a green light. Glassnode analysts also point to MVRV, which divides market value by average purchase price. It is currently trading at 0.95, a reading that is not as deep as the 0.85 average seen in previous bear markets.

“This may mean further decline and/or consolidation time needed to establish a bottom,” Glassnode said. “However, it may also signal that a greater degree of investor support exists in this bearish cycle.”

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