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Bitcoin Traders See Buying Opportunity as Traditional Markets Continue to Falter: Market Watch Weekly 3/16-3/22
Financial asset prices rebounded but did not stabilize during this past week. The financial tumult has continued as more governments launch unprecedented measures to contain the spread of the coronavirus, including travel bans and city shutdowns.
Bitcoin and U.S. stocks show signs of decoupling
After seeing record lows in the past two weeks, stocks closed higher on Thursday, March 18, after a series of responses from the U.S. Federal Reserve. Bitcoin (BTC) was the fastest-rebounding asset class this week.
Although Bitcoin’s (BTC) 90-day correlation with the S&P 500 index reached an all-time high last week, it has gradually decoupled (see chart below) after another trading halt in U.S. stocks on March 16. Compared to stocks, Bitcoin is showing a relatively smaller decline and a faster rebound.
Bitcoin broke through Monday’s high on Thursday and made a new recent high of $6,948 on Friday, March 20, before another retracement. The overall trend is clearly better than other asset classes.
The OKX BTC price index has rebounded nearly 60 percent from the March 12-13 low of $3,890 and is currently trading just below $6,000. Bitcoin’s recovery has also helped boost altcoins. Some cryptocurrencies, including BCH and BSV are up more than 15 percent in the last 7 days.
Technicals show a buy signal
The 200-week moving average is a very important trendline in the history of Bitcoin’s price. Bitcoin has bottomed out around this moving average in every major market cycle. The color heatmap below is based on the percent increases of that 200-week moving average.
Historically, when orange and red dots appear in the heat map, the market is overheating. When purple dots appear, the price is close to this important line, which has historically been a good time to buy.
Bitcoin’s rally to above 200-week moving average after the sudden crash on March 12-13 also shows that this trendline is still an important support level. However, we have never seen a case of a V-shape reversal on the heatmap. More likely, we will see a long-term curved bottom after rapidly approaching the 200-week moving average.
Long-term “hodlers” are buying bitcoin these days, according to data from Glassnode. The “Hodler Net Position Change” metric shows the monthly position change of long-term investors. When the metric is in the green zone, it means that hodlers have started to accumulate Bitcoin.
Sentiments signal a potential reversal in price
The Crypto Fear & Greed Index also shows a potential buying opportunity, after flashing into the “Extreme Fear” zone. According to the index:
Crypto markets have been trading in “Extreme Fear” since March 9, according to the index. Following the March 12-13 market crash, the index hit its lowest level since August 2019.
Moreover, according to a blog post from Chainalysis published on March 18, the majority of excess BTC arriving at exchanges has been sold, and the worst of the over supply appears to be finished for now.
We can use OKX Trading Data to find short-term market sentiment. The BTC Long/Short Ratio — which shows the ratio of users with net long vs short positions over a given period of time — remained near 1.0 at the start of this week.
The ratio then began a rapid decline on Friday, March 20. It is currently running back to 0.87. The number of users with short positions is still higher than longs. The current range of the “BTC Long/Short Ratio” indicates market participants are still not optimistic about Bitcoin’s price in the near future.
In addition, OKX’s BTC Margin Lending Ratio — which shows the ratio between users borrowing USDT versus borrowing BTC in USDT value over a given period of time — recovered from a historical low of 0.1 during last weekend.
The ratio has risen as high as 0.3, which indicates that short positions are dominating in the leveraged lending market. Extreme numbers of this ratio have historically indicated a reversal time.
The price of Bitcoin in the short-term is still hard to predict, though multiple data suggest that this might be a good time to accumulate the cryptocurrency, as discussed above. Traditional financial markets will face continuing tests after the open bell today, March 23.
Bitcoin may have shown signs of decoupling from U.S. stocks, but is still hard to draw an independent candlestick straight away.
Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.
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