Research report outlines why the crypto market might be on the verge of a reversal

As November begins, analysts are busy dissecting the major market movements that occurred in October. While Bitcoin (BTC) remained relatively unchanged with only 5.89% growth in October, Arcane Research senior analyst, Vetle Lunde mapped out the direction the market could take in the coming months.

“Uptober,” a reference to Bitcoin’s historically optimistic performance in October, was a common theme in several threads on crypto Twitter and according to Lunde it seems to have happened. The data shows that BTC and exchange tokens outperformed the major cap indexes until October 26.

Elon Musk’s Twitter handle helped propel the large-cap index above Bitcoin with a 20% monthly gain. Dogecoin (DOGE) helped cement the strength of the large cap by producing a 144% gain in the last seven days.

Performance weighted index for performance October 2022. Source: Arcane Research

October’s Bitcoin spot market was driven by increased volume and lower volatility, while benefiting from a short squeeze that briefly energized the market. According to Lunde, the last week of October saw the highest volume of short liquidation in crypto since July 26, 2021.

While this activity helped push Bitcoin up by 6%, Ether (ETH) and Binance Coin (BNB) saw more substantial gains of 18% and 19% respectively.

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7-day average BTC USD daily volume with and without Binance. Source: Arcane Research

The short push helped provide an overall boost but Lunde concluded that the momentum did not create a substantial change in the price of BTC. BTC spot volume is up 46% in the last seven days and the 30-day volatility index is at a 2-year low. In addition, the 7-day volatility index stands at 2.2%, while the annual average is 3%.

30-Day and 7-Day volatility for BTC. Source: Arcane Research

Comparing volatility from the previous squeeze to the recent squeeze, Lunde said:

“The July 26 forecast saw a daily high-low variation of 15% as markets rushed higher, whereas the October 25 and October 26 movements saw daily high-low variations of 5% and 6%, respectively. More , momentum has stalled, indicating that traders should prepare for longer consolidation.”

While Bitcoin has an attractive price, the best approach in this market is to average dollar prices in the short term rather than using leverage, according to Lunde. Bitcoin has experienced exceptionally low volatility and tracks the US stock market closely, so it is important to follow the Q3 earnings reports.

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Fed policy will continue to dictate the price of Bitcoin

Federal Reserve Chairman Jerome Powell will speak after the Federal Open Market Committee (FOMC) on November 2 about US monetary policy, inflation and the upcoming rate hike.

According to Lunde, there are two scenarios to watch:

“Scenario 1: Jerome Powell remains astute in combating inflation and preparing the market for further increases. This is, in my opinion, the most likely scenario. In this environment, I expect the correlation between BTC and other asset classes to remain elevated and now. The 4.5-month-long trading range holds firm, with wet activity, leading to a longer-lasting environment with opportunities to stack up.”

“Scenario 2: Jerome Powell hints at subtle pivot. In this scenario, I see the market environment softening correlations. Last week, we saw how the unique structural activity of cryptocurrencies relative to the market caused correlations to decrease across a big squeeze. Anticipated pivot will lead. similar reaction and revitalizing BTC’s digital gold narrative.”

Under the second scenario, some analysts believe that crypto could begin to decouple from US stocks. This reaction could mirror the reaction of the cryptocurrency market in mid-2020 that pushed the price of Bitcoin over $20,000.

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What to expect in the long run

In the long term, Lunde predicts that the adoption of Bitcoin and digital assets will continue to be an emerging trend. Pointing to a Fidelity survey that showed an increase in interest from the institutional market in 2022, Lunde remains optimistic about BTC at the current price.

Even if Bitcoin is seeing fewer transactions on chain, increasing participation in a clearer regulatory framework is possible in the long run. A clearer framework could eventually emerge if the US electorate begins to consider crypto policy when voting.

Bitcoin’s target growth, its correlation with stocks and a sticky downward trend for almost a year remain a threat, but many analysts are confident that the current price of Bitcoin is undervalued.