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

As November begins, analysts are busy analyzing the major market moves that occurred in October. While Bitcoin (BTC) was relatively unchanged with only 5.89% growth in October, Arcane Research Senior Analyst, Vetle Lunde traced the direction that the market could take in the coming months.

“Uptober,” a reference to Bitcoin’s historically bullish performance in the month of October, was a common theme in many threads on crypto Twitter, and according to Lunde, it appears to have happened. Data shows that BTC and exchange tokens outperformed the large-cap index through Oct. 26.

Elon Musk’s takeover of Twitter helped propel the large-cap index above Bitcoin with a staggering 20% ​​monthly gain. doecoin (DOGE) helped cement the strength of the large cap by posting a 144% gain over the last seven days.

Index performance weighted for October 2022 performance. Source: Arcane Research

The October Bitcoin spot market was buoyed by higher volume and lower volatility, while benefiting from a brief contraction that briefly invigorated the market. According to Lunde, the last week of October saw the largest cryptocurrency short-liquidation volume since July 26, 2021.

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

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

The short contraction helped provide an overall boost, but Lunde concluded that the boost did not create a substantial change in the price of BTC. BTC spot volume is up 46% in the past 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%.

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30 and 7 day volatility for BTC. Source: Arcane Research

Comparing volatility in a previous short crunch to the recent short crunch, Lunde said:

“The July 26 contraction saw a daily high-low change of 15% as markets rallied rapidly, while the October 25 and 26 move saw a daily high-low change of 5% and 6%, respectively.” Also, the momentum has stalled, indicating that traders should brace for a longer consolidation.”

While Bitcoin is attractively priced, the best approach for this market is short-term dollar cost averaging rather than using leverage, according to Lunde. Bitcoin has been experiencing exceptionally low volatility and is closely following the US stock market, so it is important to keep an eye on the Q3 earnings reports.

Fed policy will continue to dictate the price of Bitcoin

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

According to Lunde, there are two scenarios to consider:

“Scenario 1: Jerome Powell remains astute in fighting inflation and prepares the market for further rallies. This is, in my opinion, the most plausible scenario. In this environment, I expect correlations between BTC and other asset classes remain elevated and now 4.5 month Trading Range to hold firm, with activity muted, leading to a longer lasting opportune environment to accumulate sats.”

“Scenario 2 – Jerome Powell provides subtle pivot suggestions. In this scenario, I see the correlated market environment softening. Last week, we saw how unique crypto-related market structural activity caused correlations to decline through a substantial drawdown. Pivot anticipations will lead to similar reactions and reinvigorate the BTC digital gold narrative.”

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

What to expect in the long term

In the longer 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 institutional markets in 2022, Lunde remains bullish on BTC at the current price.

Although Bitcoin is seeing less chain transactions, greater participation from a clearer regulatory framework is possible in the long term. A clearer framework could eventually emerge if the The American electorate begins to consider crypto policy when voting.

Bitcoin’s moderate growth, its correlation with stocks, and a persistent downtrend for nearly a year remain a threat, but many analysts are confident that Bitcoin’s current price is undervalued.