Key Takeaways
What prompted Fidelity’s call on the crypto market?
Fidelity’s Chris Kuiper said STH’s capitulation and weak sentiment reflected local bottoms.
So what’s holding back a strong turnaround?
Macro uncertainty and expectations for Fed rate cuts could derail a strong recovery.
The bottom calls in the crypto market are increasing as Bitcoin consolidates above $90,000.
Chris Kuiper, VP of Research at Fidelity Digital Assets, is the latest to join this camp, citing the capitulation of short-term holders (STH) and market sentiment falling to levels that have led to reversals in the past.
He added,
“If this is indeed a steady 20-30% decline within the current bull market, then the MVRV ratio is showing a similar trough as before, testing the mettle of short-term holders before they reset to move higher.”
Source: Glassnode
Interestingly enough, Swissblock analysts also made a similar market stabilization projection, citing the same metric.
For perspective, the negative (red) MVRV represents an extreme STH capitulation, similar to previous local bottoms during this bull run.
Kuiper also noted that current Bitcoin [BTC] market sentiment was at an extreme fear level of 10, which historically marked past reversals, adding:
“These data tips can assess the likelihood in favor of a regular and healthy relapse.”
An extra drop before a rebound?
Fundstrat CIO Tom Lee echoed Kuiper’s position and stated:
“This is the reality in crypto. Almost the bottom, but as my friend Eric S says, bottoms are ‘ugly’.”
The only caveat to the projection is that previous declines have seen recoveries at key support points (the 50-week exponential moving average) on the price charts.
While the current pullback during bull runs was within the normal 20%-30% correction, it broke below key support.
Source: BTC/USD, TradingView
At the level of ‘extreme fear’, this is a reversal sign, according to analyst Benjamin Cowen counteracted,
“A sign that a cycle is over is when you get to ‘Extreme Fear’ and there are no jumps happening. I would say the signs that the top is in continue to increase.”
Cows added that he would only turn bullish if BTC reclaims the 50W EMA next week.
Macro uncertainty persists
Moreover, the possible expected relief on the macro front, via a rate cut by the Fed, became more uncertain.
The September jobs report will be published on November 20 as planned. However, the October report has been published cancelled after the Bureau of Labor Statistics failed to conduct a major study.
In short, the Fed will go into the December interest rate decision half blind. And markets immediately repriced the expectations.
The probability of an interest rate pause rose to 66%, while the probability of an interest rate cut by 25 pbs fell from 50% to 33% at the time of writing.
Source: CME FedWatch Tool
Overall, signals on the chain suggested that a potential local bottom was nearby. But without a strong catalyst for a turnaround on the macro front, the market could remain vulnerable.