Arcane Research Market Report Outlines Why Crypto Markets May Be Close to Reversal

As November begins, analysts are busy analyzing the major market moves that occurred in October. Although the price of Bitcoin remained relatively unchanged in October, increasing by only 5.89%, Arcane Research senior analyst Vetle Lunde predicted the likely direction of the market in the coming months.

“Uptober” refers to Bitcoin’s historically bullish performance in October, a common theme in many threads on crypto Twitter, which, according to Lunde, appears to be happening again. The data shows that BTC and exchange tokens have outperformed the broader market index as of Oct. 26.

Elon Musk's acquisition of Twitter pushed the broader market index to outpace Bitcoin with a 20% monthly gain. Dogecoin has rallied 144% over the past seven days, helping to solidify the broader market’s dominance.

Weighted Index Performance October 2022 Source: Arcane Research

Bitcoin spot markets in October were boosted by higher volumes and lower volatility, while benefiting from a short squeeze that briefly lifted the market. In the last week of October, cryptocurrencies saw the largest short liquidations since July 26, 2021, Lunde said.

While the activity pushed bitcoin up 6%, ethereum and BNB posted more impressive gains of 18% and 19%, respectively.

BTC/USD 7-day average daily trading volume (with and without Binance) Source: Arcane Research

The short squeeze has lifted the overall market, but Lunde concluded that the momentum has not brought about a material change in the price of Bitcoin. Bitcoin spot trading volume has increased by 46% in the past seven days, and the 30-day volatility index is at a two-year low. Additionally, the 7-day VIX is currently at 2.2%, compared to the annual average of 3%.

BTC’s 30-day and 7-day volatility Source: Arcane Research

Comparing the volatility of the previous short squeeze and the most recent short squeeze, Lunde said:

“In the July 26 squeeze, the daily high and low range was 15% as the market rushed higher, while in the October 25 and October 26 squeezes, the daily high and low range was 5% and 6%, respectively. %. Moreover, momentum has stalled, suggesting traders should brace for a longer period of consolidation.”

Lunde said that while the price of bitcoin is attractive, the best way to enter this market is to use dollar cost averaging in the short term, rather than using leverage. Bitcoin’s volatility has been low and closely tracks U.S. stocks, so it’s important to track third-quarter earnings reports.

Fed policy will continue to dictate Bitcoin price

Federal Reserve Chairman Jerome Powell will speak on U.S. monetary policy, inflation and upcoming rate hikes after the Nov. 2 FOMC meeting.

According to Lunde, there are two situations to be aware of:

“Scenario #1: Powell remains savvy in fighting inflation and prepares the market for further rate hikes. In my view, this is the most plausible scenario. In this environment, I would expect an uptick between BTC and other asset classes Correlations will remain elevated, the current 4.5-month-long trading range will remain firm and activity will be subdued, accumulating to provide a more durable favorable environment."
“Scenario Two: Powell provides subtle hints of a shift. In this scenario, I think the relevant market conditions will soften. Last week, we saw how uniquely crypto-related market activity led to a correlation via a massive short squeeze. Sexual decline. The shift is expected to lead to a similar reaction and reinvigorate BTC’s digital gold narrative.”

In the second scenario, some analysts believe that cryptocurrencies may start to decouple from U.S. stocks. This reaction may mirror that of the crypto market in mid-2020, which pushed the price of Bitcoin above $20,000.

long term expectations

In the long-term, Lunde predicted that the adoption of bitcoin and digital assets will continue to be an emerging trend. Lunde pointed out that according to a survey by Fidelity, the institutional market's interest in Bitcoin will increase in 2022, and he remains bullish on Bitcoin at its current price.

While bitcoin has seen fewer on-chain transactions , a clearer regulatory framework could increase participation in the long run. If U.S. voters start thinking about encryption policy when they cast their ballots, a clearer framework may finally emerge.

Bitcoin's lackluster growth, correlation with stocks, and nearly year-long downtrend remain a threat, but many analysts believe Bitcoin is currently undervalued.