Global risk markets are in a bloodbath, can we catch the bottom BTC now?

Author: WOO

On August 5, 2024, this day will definitely be remembered in the history of the cryptocurrency world. BTC fell from a high of 58000 to 48800, with a single-day decline of about 9000 points, a maximum decline of 16%. Ethereum suffered an even more severe decline, reaching 21%. Other altcoins were even more dismal, with the overall market capitalization of the cryptocurrency market falling by 14% in 24 hours.

Top market makers are selling large amounts of coins in succession, such as Jump constantly dumping its holdings. Currently, 96% of assets are stablecoins. GSR and Wintermute related wallets have also been detected transferring tokens to centralized exchanges.

Not only the crypto world has been bloodbath, but the Japanese stock market also experienced an epic crash, with the Nikkei index falling 12% and triggering two circuit breakers; the South Korean stock market fell by about 9%.

The reason for the global risk market big dump may be related to Japan’s interest rate hike and expectations of US economic recession.

• Impact of Japanese interest rate hike: Due to Japan’s long-term low interest rate or even negative interest rate situation, the borrowing cost of the Japanese yen is extremely low. Many traders borrow Japanese yen at low interest rates, exchange it for US dollars, and use it to purchase US stocks.
• And recently, Japan announced a rate hike, which has increased borrowing costs and also led to a significant strengthening of the yen / dollar Exchange Rate, causing traders who borrow yen to buy US stocks to not only have to pay higher Interest on the borrowed yen, but also face huge forex losses. Their holdings of US dollar assets may not be sufficient to repay the borrowed yen.
• This will cause them to sell their positions in US stocks to obtain US dollars, and to recall Japanese yen and repay debts, also causing short-term dumping pressure on US stocks.
• Expected economic recession in the United States: The US unemployment rate in July rose from 4.1% last month to 4.3%, higher than the expected 4.1%, reaching a new high since October 2021, also causing concerns about falling into an economic recession. Goldman Sachs has raised the risk of the United States experiencing an economic recession in the next year from 15% to 25%.

Currently, the market is surrounded by Unfavourable Information, when will this wave of decline end? What position are we in the market right now? Can we catch the bottom? Let’s follow WOO X research to find out.

Market sentiment: Approaching extreme panic

First, observe the market sentiment. We use the Fear Greed Index and borrowing Interest Rate to help us understand the current encryption market situation.

Fear and Greed Index: Hits a New Low in a Year and a Half

Counter-market sentiment operation: sell when greedy, buy when panicked.

This index is composed of Volatility (25%), volume (25%), social media volume (15%), market survey (15%), Bitcoin market share (10%) and Google search trends (10%), with a score range of 0 to 100, as follows:

0-20: Extreme Fear

20-40: Panic

40-60: Neutral

60-80: Greedy

80-100: Extremely greedy

Currently, the index has dropped from 74 greed on 7/29 to 26 now, hitting a new low in a year and a half in less than a week, approaching extreme panic. This indicates that the market sentiment is changing very quickly, but usually when most people are in panic, it may be a good time for us to buy.

funding rate: The funding rates for multiple Mainstream Tokens are negative

Established to maintain balance between contract price and underlying asset price. This fee rate is commonly applied to Perptual Futures, facilitating the flow of funds between long and short traders, allowing the contract price to be closer to the actual price of the underlying asset.

When the price of Perptual Futures deviates from the price of the underlying asset, the exchange will adjust the funding rate to encourage longs or shorts to pay each other fees in the hope that the contract price will return to the level of the underlying asset price.

When the market is bullish, the funding rate is usually positive and increases over time. At this time, longs need to pay funding rate to shorts.

In contrast, in a bearish market, the funding rate is usually negative, and shorts pay fees to longs. This mechanism helps ensure the fairness of Contract Trading and the stability of the market.

As shown in the following figure, the funding rate was mostly maintained above 50% APR (paid by bullish and bearish traders) before 4/12. The sentiment in the Token market was high, and bullish traders were strong. At that time, the price was also at a cyclical high point, reaching $70,000.

After 4/12, as BTC fell, the funding rate returned to neutral or even negative, indicating that the market sentiment had stabilized.

In early July, as the currency price rose and the funding rate rose again, it turned out to be another phased high. Currently, funding rates for multiple currencies are negative, and the market has returned to a calm, even pessimistic state.

When will it fall? BTC rainbow chart indicator, Al 999 indicator, bubble index show the bottoming zone

BTC Rainbow Chart Indicator

The rainbow chart is a tool used to evaluate the long-term value of BTC. It uses a logarithmic growth curve to predict the possible trend of BTC’s future price.

The rainbow chart overlays a rainbow band at the top of the logarithmic growth curve channel, attempting to highlight the market sentiment of each stage and identify potential buying and selling opportunities when the price crosses each band.

The warmer color area on the chart indicates periods when the market may be overheated. Historical data shows that these periods are good opportunities for strategic investors to take profits.

When the price falls to the colder color zone, the overall market sentiment is usually low, and many investors are less interested in BTC. The rainbow chart indicates that these periods are usually excellent opportunities for strategic investors to increase their holdings of BTC.

Currently, the price of BTC is falling within the blue zone, which is the auction range for jumping off a building. In the long run, based on historical data, it is a great opportunity to catch the bottom.

Ahr999 indicator: Falling within the dollar-cost averaging range, but data updates are not immediate, or it has reached the bottom-picking line

This indicator implies the yield of BTC short-term Auto-Invest and the deviation between BTC price and expected valuation.

• When the AHR999 index is below 0.45, you can catch the bottom;
• When the AHR999 index is between 0.45 and 1.2, it is suitable for Auto-Invest;
• When the AHR999 index is above 1.2, the currency price has already been relatively high and is not suitable for operation.

In the long run, the BTC price shows a certain positive correlation with Block Height. With the advantage of Auto-Invest, users can control the short-term Auto-Invest cost, keeping it mostly below the BTC price.

Currently, the Ahr999 index is 0.67, falling within the range of 0.45 to 1.2 for dollar cost averaging, but the current data is stuck at a BTC price of 58114, which is about 52500 US dollars at the time of writing, indicating that the Ahr 999 index will be lower than 0.67, more suitable for catching the bottom.

Current strategy: Auto-Invest is still the best choice

Currently the market sentiment is low, affected by a variety of macroeconomic Unfavourable Information events. It is not advisable to be too aggressive at this time. It is still necessary to observe. The lowest point of this wave of BTC is 48800, and it has rebounded to about 52500. It is still necessary to observe whether it can stand at the price of 51500. If it unfortunately falls below, it may return to the 48000 range, which is also a relatively low buying point.

In addition to observing the price trend of the currency, the attitude of the Federal Reserve is also a major focus. If it can cut interest rates early or increase the intensity of rate cuts in September, it may bring some hope to the current market.

For readers who want to buy now, it is recommended to start Auto-Invest (DCA) as the market sentiment is almost freezing and the current price is high in terms of profit and loss ratio. Through Auto-Invest, you won’t miss this epic price drops at a cheap price. On the other hand, if the price continues to drop, you can continue to buy chips at a lower price. From a long-term perspective, now is a good time to Auto-Invest in Bitcoin.