Bitcoin (BTC) topped out around $46,000 on April 4 before plummeting back to $38,000, causing a lot of frustration among crypto traders who have been so used to unrealistic market returns in the last two years after the fall of March 2020.
February and March showed signs of recovery, especially after the sharp falls in December and January. But, the question is, why has the bullish momentum suddenly stopped?
S&P 500 Correlation Continuation
The correlation between cryptocurrencies and equities, in particular bitcoin and the S&P 500, continues to exist and is expected to last until mid-May, when Jerome Powell and the US Federal Reserve announce a likely 0.5% rate hike for fight inflation.
Nevertheless, this does not necessarily mean that bitcoin is going to show more declines. Let’s assume that cryptocurrencies continue to mimic the movement of stock prices and not the other way around.. In that case, many speculate that although the S&P 500 has been falling lately, rate hike fears would likely have kicked in before the Fed’s scheduled meeting.
Bitcoin Whales Vanish, Tether Whales Rebound
The cryptocurrency data platform Santiment takes into account two levels of whales to analyze the future price movement of the market: the supply held by addresses with 100 to 10,000 BTC and the supply held by addresses with 100,000 to 10,000,000 Tether (USDT).
In the last two months, the BTC whales of this key group have reduced 0.6% of their holdings. Meanwhile, the key group of USDT has added 1.8% of the supply of the most important of the stablecoins.
Although big whale addresses have shed their BTC supply, evidence shows that prices generally go up when there are more addresses holding between 10 and 100,000 BTC.. Since the Russo-Ukrainian war broke out in late February, addresses holding approximately $3.8 million in total have been created or returned to the BTC network.
Traders are misled on the dip buying opportunity
Santiment has found a reliable trend that people in the traditional world are wrong the vast majority of the time when they believe that a price event occurs too smoothly. Even with the “buy the dip” narrative going full throttle, the chart below shows that prices did not bounce as traders expected. Ironically, it is often when the crowd abandons any inclination to find the bottom that prices begin to recover.
Ether whales start to show interest
Santiment’s Ether (ETH) whale transaction count metric indicates levels had started to rise at the same rate of over 1,400 per day seen last week as the decline quickly recovered. High-value transactions over $100,000 would likely indicate that major key stakeholders are beginning to circulate their coins at bullish levels.
Traders have short strategies ahead of May
Exchange funding rates are another indicator of price direction. When there is an excess of long positions (bets on prices going higher) like what was seen just after the all-time high in November, prices tend to correct. However, it seems that the opposite trend is taking place right now.
Short funding rates are evident across multiple exchanges, indicating that the FUD surrounding crypto markets is evident. Typically, when BTC and altcoins are shorted to this degree, there is a noticeably higher chance of prices rising to force liquidations against those betting against rising cryptocurrency prices.
It is important to look for signs of capitulation as an indicator that a price bottom may finally be present. At the moment, There is no overwhelming evidence of trader fear, but negative funding rates and a few other signs are certainly helpful signs.
Until a certain point, a fundamental event like the Federal Reserve rate hike may cloud the data for a while longer. But, the signs at least seem to point towards more bullish divergences not seen for a month.
Cointelegraph’s Market Insights newsletter shares our insights into the fundamentals that drive the digital asset market. This analysis has been produced by the leading provider of analysis Santiment, a market intelligence platform that provides information on the chain, social networks and the development of more than 2,000 cryptocurrencies.
Santiment develops hundreds of tools, strategies, and indicators to help users better understand cryptocurrency market behavior and identify data-driven investment opportunities.
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