The recent collapse in the price of Bitcoin has not yet fully recovered, so much so that there continue to be negative forecasts for the short term.
This is what emerges, among other things, from the latest issue of the Bitfinex Alpha report published yesterday.
The collapse of the Bitcoin price and the influence on new forecasts
After reaching $70,000 at the end of July, the price of Bitcoin lost almost 29% of its value until August 5, when it briefly fell below $50,000.
It touched the lowest point since it recorded its all-time high in March, although it then slightly rose again.
However, the analysts at Bitfinex point out that, despite the strong recovery since August 5, key metrics suggest that there is still a bear sentiment among investors.
The current price level is still below $60,000, and although it is above the $57,000 threshold that held from the end of February until early July, it is in line with the price of August 4.
Therefore, the losses due to the crash on August 5 have indeed been absorbed, but the trend does not yet seem to have completely reversed.
Sentiment and negative forecasts on the price of Bitcoin
The current situation is well summarized by the Fear&Greed index.
At the beginning of May, when the price level was almost identical to the current one, the value of this index had dropped to a maximum of 43 points. It is worth noting that, compared to the highs of a month and a half earlier, the loss had been 23%.
Now instead it has dropped to 31, while yesterday it was even at 25. On August 6th it was at 17, so the current level is not much higher. Let’s remember that the daily values of this index measure the market sentiment of the previous day, and particularly that of retail investors and speculators.
The curious thing is that compared to the highs of July, the current price level is only 16% lower, so in theory, the situation might even seem better than it was at the beginning of May.
Why is the current sentiment one of high fear, while at the beginning of May with the same price levels it was only moderate fear?
The hypothesis is that investors and speculators, especially retail, are fearing a further decline.
The analysis of Bitfinex
The analysts at Bitfinex state that the recent market downturn has been decidedly intense.
Some key metrics reveal it, such as the Mayer Multiple which compares the current price of BTC with its 200-day moving average.
This metric dropped to 0.88 during the recent crash, a level not seen since the FTX crash at
November 2022. This indicates a strong bear phase, given that Bitcoin was traded at a price significantly lower than its historical average trend.
Furthermore, the spot price of BTC has approached the band of 1 standard deviation (1SD) below the STH Cost-Basis.
This metric, that is the realized price of short-term holders, reflects the average purchase price of recent buyers, and is currently around $64,800.
The fact that the market price in recent days has approached the 1SD band below the STH Cost-Basis is a rare event, historically observed only in about 7.1% of trading days (364 out of 5,139), and according to Bitfinex analysts highlights the severity of current market conditions. It indicates that the recent sell-off has pushed the price to levels rarely seen in relation to the cost basis of short-term holders.
They write:
“This situation not only reflects the abrupt pace of the decline, but also serves as a crucial signal for investors about the extent of negative sentiment and potential stress among new market participants. Such insights are valuable for assessing market conditions and potential recovery scenarios”.
The short-term holders
The issue therefore primarily concerns short-term holders, namely speculators or investors who have only recently entered.
The analysis by Bitfinex also points out how the MVRV ratio of short-term holders shows that this group is holding the largest unrealized losses since the lows of the bear-market of 2022.
The MVRV ratio compares the current market price with the purchase price of new investors.
Overall, these metrics highlight a deep bear sentiment, and widespread stress among short-term investors, typical of local lows.
Sentiment and forecasts
So on one side there are recent entry investors, and speculators, who tend to have a negative sentiment during this period.
On the other hand, there are signals indicating a possible bottom in the short term.
This suggests that it is unlikely there will be a vigorous rebound in the short term, given that it is often speculators and retail investors who drive prices up by buying large quantities, perhaps just after the price has already started to rise.
However, it also suggests that in the short term a bottom could be near, perhaps with a new dip below $50,000. Therefore, in the medium/short term a rebound could also be possible, if the bottom holds.
In particular, such a negative sentiment at a time when the price is still +39% compared to the beginning of the year suggests that retail investors might also be excessively scared, and since retail often make mistakes, this could instead indicate a good time to restart.
The indicators do not yet suggest a restart in the short term, but in the coming days if the bottom just below $50,000 holds, at this point it would not be surprising if a reaction were to occur in the medium/short term.