Kolkata: With BTC unable to recapture the $60k level over the weekly close and heading downwards, it seems that the retail and mainstream media’s confidence in BTC is starting to weaken.
Until last week, retail sentiment towards BTC was still largely bullish, with a number of ‘buy the dip’ calls on social media. But with last week’s BTC price action, the average investor sentiment has shaken, changing from ‘bullish’ and ‘to-the-moon’ to ‘largely bearish’. As per Santiment, a behavior analytics platform, the amount of ‘buy the dip’ mentions collected from over 1000 crypto-related social media channels over the past week has indeed come down.
A similar shift is visible in derivative markets as well. Funding rates in perpetual contracts are payments to leverage traders based on the difference between the spot price market and the perpetual contract. These funding rates make the perpetual futures contract price close to the index price to prevent price manipulation. All cryptocurrency derivatives exchanges use funding rates for perpetual contracts. When it is positive, it suggests a net bullish bias among derivative traders, since long positions are paying short positions. When it is negative, it signals a more negative outlook as short positions are paying long positions. For the moment, as per Santiment, Bitcoin’s funding rates are sitting at 0.01% on Binance, Bybit, Huobi and Bitmex as well as -0.001% on FTX, pointing to a growing indecisiveness among derivative traders that seem to prefer a ‘wait and see’ approach. Over the past week, the number of long positions by institutions has come down considerably. Just like social sentiments, high/growing funding rates also signal a bullish consensus towards Bitcoin, which has coincided with price tops and periods of price consolidation for BTC throughout the year so far.
But does that mean Bitcoin’s dream run is over? Will the FUD (Fear, Uncertainty, Greed) result in a prolonged bear phase? The reality is far from it. For any asset price action, the graph never goes ‘up-only’. For a healthy price run, it is important for the price to pull back and cool down before the next leg up. This is how sustainable price action is derived over a long time not just for Bitcoin but for all kinds of asset classes. Also looking at the longs/shorts positions, it is a good sign that the number of long positions have come down considerably which doesn’t necessarily mean the onset of a bearish phase. With that in mind, seeing the mainstream crypto crowd start to ‘lose hope’ on social media may actually help support Bitcoin’s mid-term recovery, though it’s still far too early to call any sort of bearish outlook.
What does this mean for retail investors? Many investors might be having a sense of Deja-vu of 2017-18 when BTC crashed after a prolonged period of price appreciation to bring in a bearish period for more than two years which also saw the Covid crash in March 2020.
However, even after the prolonged bear phase, BTC still went on to register its all-time highs in 2021. The investors clearly need to zoom out of the graph and look for the longer time frame picture. In a weekly or monthly graph, BTC is still following the upward course. With large institutions, hedge funds, investment banks, etc. taking a position on Bitcoin and countries like El Salvador openly announcing their buying levels, we are reaching a stage where cryptocurrencies are experiencing mainstream adoption. For a believer of Bitcoin and the overall crypto market, there can be nothing better than this.
(Disclosure: The author is not a current holder of Bitcoin but holds other cryptocurrencies. None of the points mentioned in the write up is financial advice.)
This is great writeup, well crafted and analysed. Would love to see more on bitcoin and crypto.