Greed & Fear Indicator and Bitcoin’s Market Sentiment
Recently, this Greed & Fear indicator (created by 10x Research), helping identify periods of market exuberance or potential buying opportunities when fear dominates, has reached levels where rebounds typically occur. However, 2024 has seen more fear signals than greed, which suggests that Bitcoin might have transitioned from a bull market to a bear market, with increased risks to the downside.
Bitcoin and Ethereum’s Market Position
With Bitcoin and Ethereum’s funding rates hovering near or below zero, futures traders have limited leverage to push prices higher. This development aligns with 10x Research's prediction following the early August market crash, reinforcing the likelihood that any significant price rallies are capped. The downturn, however, has been brewing for some time. Ethereum’s revenue and transaction fees have dropped sharply due to reduced user activity, further solidifying the bearish outlook.
21-Week Moving Average as a Bear Market Indicator
One of the most reliable indicators for long-term investors is the 21-week moving average. Currently, this average sits at 61,100 for Bitcoin. As long as Bitcoin stays below this threshold, it remains firmly in bear market territory. Until Bitcoin surpasses this level, there’s little reason to believe a bull market is imminent.
The Federal Reserve’s Upcoming Decision and Economic Uncertainty
Two major uncertainties loom over financial markets: the Federal Reserve’s next move in September and the outcome of the U.S. Presidential election. With the Fed entering a communication blackout period, markets may be in a state of limbo until a clearer signal is provided.
10x Research predicts that the Fed might cut interest rates by 50 basis points to stay ahead of economic risks. A 25 basis point cut could be too slow, especially considering the delayed effects of monetary policy. Though a larger cut could signal deeper concerns to the market, the Fed’s focus will likely remain on stabilizing the economy. Our analysis suggests the chance of a 50 basis point cut is only 29%, contrasting with the broader consensus.
CPI Report and Inflation Outlook
The U.S. Consumer Price Index (CPI) report, scheduled just after the upcoming debate, is more significant than usual. Projections suggest a drop from 2.9% to 2.6%, potentially justifying a 50 basis point rate cut. With the current Fed rate between 5.25% and 5.50%, and restrictive monetary policy levels generally considered to be anything above 3.0%, we believe rates might currently be too high by as much as 200 basis points. The 2-year Treasury yield, which reflects market expectations, also suggests a 160 basis point rate reduction is possible.
The Federal Reserve’s Flexibility Moving Forward
Entering 2024, the market anticipated as many as six rate cuts, but Fed Chair Powell has emphasized the need for flexibility due to ongoing economic uncertainties, especially following mixed inflation data and slowing growth. The March FOMC meeting underscored this, with Powell noting the challenges in reaching the 2% inflation target. Bitcoin’s price peaked around the release of higher-than-expected March CPI data but experienced a sharp drop after the FOMC meeting, highlighting the importance of the coming weeks for both inflation and market sentiment.
U.S. Presidential Election and Its Impact on the Market
In the political sphere, Polymarket’s betting odds show Trump with a 51% chance of winning the election, compared to 46% for Kamala Harris. Nate Silver’s forecast is even more bullish for Trump, giving him a 63.8% chance versus 36% for Harris. These predictions have shifted after Harris emphasized her commitment to higher taxes during the Democratic National Convention. However, Allan Lichtman’s “13 Keys” model, which has accurately predicted 9 of the last 10 elections, currently favors Harris, who holds 8 out of the 13 keys required for a win.
Bitcoin’s Potential Rebound
Bitcoin has recently shown signs of recovery, with three technical reversal indicators pointing to a potential rally. Monday’s rally exceeded expectations, particularly with its swift 24-hour movement. Several key bullish events, such as the Harris-Trump debate and the anticipated drop in CPI data, continue to serve as catalysts for upward momentum in the near future.
Reference: 10x Research - Cracking the Code to Bitcoin Profits: Here's What You Need to Know!