August 5, 2024, is a day that will definitely go down in the history of the cryptocurrency world. Bitcoin fell from 58,000 to 48,800, a single-day drop of about 9,000 points, with a maximum drop of 16%, while Ethereum fell even more severely, up to 21%. Other altcoins were even worse, with the overall cryptocurrency market value falling 14% in 24 hours.
The leading market makers have been selling huge amounts of coins one after another. For example, Jump has been dumping its assets continuously, and currently 96% of its assets are stablecoins. GSR and Wintermute related wallets have also been detected transferring tokens to centralized exchanges.
Not only was the cryptocurrency world slaughtered, the Japanese stock market also suffered an epic crash, with the Nikkei index falling 12% and triggering circuit breakers twice; the South Korean stock market fell about 9%.
The sharp drop in global risk markets may be due to Japan's interest rate hike and the expected US economic recession.
Impact of Japan's interest rate hike: Since Japan has been in a low or even negative interest rate situation for a long time, the cost of borrowing yen is extremely low. Many traders borrow yen at a low interest rate, convert it into US dollars and use it to buy US stocks.
The recent interest rate hike in Japan has increased borrowing costs and caused the yen/dollar exchange rate to strengthen significantly, so that traders who borrowed yen to buy US stocks not only have to pay higher interest for the borrowed yen, but are now facing huge foreign exchange losses. The US dollar assets they hold may not be enough to repay the borrowed yen.
This will cause them to sell their U.S. stock positions to obtain U.S. dollars, and to recover Japanese yen and repay debts, which will also lead to short-term selling pressure on U.S. stocks.
Expected US recession: The US unemployment rate in July climbed to 4.3% from 4.1% last month, higher than the expected 4.1%, the highest since October 2021, and also triggered concerns about a recession. Goldman Sachs has raised the risk of a US recession in the next year from 15% to 25%.
The market is currently surrounded by negative news. When will this wave of decline end? Where are we in the market now? Can we buy at the bottom? Let’s follow WOO X research to find out.
Market sentiment: Approaching extreme panic
First, let’s look at market sentiment. We use the Fear and Greed Index and lending rates to help us understand the current state of the crypto market.
Fear and Greed Index: hits a one-and-a-half-year low
Operate against market sentiment: sell when greedy and buy when panicky.
The indicator is a combination of volatility (25%), trading volume (25%), social media voice (15%), market research (15%), Bitcoin market share (10%) and Google search trends (10%). The indicator ranges from 0 to 100, and the scoring method is as follows:
0-20: Extreme panic
20-40: Panic
40-60: Neutral
60-80: Greed
80-100: Extremely Greedy
Currently, the index has dropped from 74 on July 29 to 26 now, and has hit a new low in a year and a half in less than a week. It is close to extreme panic, which shows that market sentiment changes very quickly. But usually when everyone is panicking, it may be a good time for us to buy.
Funding rate: The fees of many mainstream currencies are negative
Set up to maintain a balance between the contract price and the price of its underlying asset. This rate is usually applied to perpetual contracts, which facilitates 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 a perpetual contract deviates from the price of the underlying asset, the exchange will encourage longs or shorts to pay each other by adjusting the funding rate in the hope that the contract price can return to the price level of the underlying asset.
When the market is bullish, the funding rate will usually be positive and increase over time, at which time longs need to pay the funding rate to shorts.
Conversely, in a bearish market, the funding rate is usually negative, and shorts pay longs. This mechanism helps ensure the fairness of contract trading and market stability.
As can be seen in the figure below, the original funding rate was mostly maintained above 50% APR before 4/12 (long side paid to short side), the token market sentiment was high, and the bulls were in high spirits. At that time, the coin price was also at a stage high of US$70,000.
After April 12, as Bitcoin fell, the funding rate returned to neutral, or even negative, which also meant that market sentiment was returning to stability.
In early July, as the price of coins climbed, the funding rate rose again. In retrospect, this was another temporary high point. Currently, the funding rates of many currencies are negative, and the market has returned to a calm and even pessimistic state.
When will it fall? Bitcoin rainbow chart indicator, Al 999 indicator, bubble index show that it is in the bottom-fishing range
Bitcoin Rainbow Chart Indicator
The Rainbow Chart is a tool used to assess the long-term value of Bitcoin. It uses a logarithmic growth curve to predict the possible future price trend of Bitcoin.
The Rainbow Chart overlays a rainbow of colored ribbons on top of a logarithmic growth curve channel, attempting to highlight market sentiment at each stage as prices cross the ribbons, thereby identifying potential buying and selling opportunities.
The warmer colored areas on the chart show times when the market may be overheated. Historical data shows that these periods are good times for strategic investors to start taking profits.
When prices fall to cooler color areas, overall market sentiment is usually depressed and many investors are less interested in Bitcoin. The rainbow chart points out that these periods are usually excellent times for strategic investors to increase their holdings of Bitcoin.
Currently, the price of Bitcoin falls on the blue band, which is a large auction range. In the long run, based on past data, it is an excellent opportunity to buy at a bargain price.
Ahr999 indicator: falls within the fixed investment range, but the data is not updated immediately, or has reached the bottom line
This indicator implies the rate of return of short-term fixed investment in Bitcoin and the deviation of Bitcoin price from expected valuation.
When the AHR999 index is below 0.45, you can buy the dip;
When the AHR999 index is between 0.45 and 1.2, it is suitable for fixed investment;
When the AHR999 index is higher than 1.2, the currency price is already relatively high and is not suitable for operation.
In the long run, the price of Bitcoin and the block height show a certain positive correlation. With the advantages of fixed investment, users can control the short-term fixed investment cost so that it is below the Bitcoin price most of the time.
Currently, the Ahr999 index is 0.67, which falls within the fixed investment range of 0.45~1.2, but the current data remains at the Bitcoin price of 58114. At the time of writing, the price was about 52,500 US dollars, which is lower, which means that the Ahr 999 index will be lower than 0.67, which is more suitable for bargain hunting.
Current strategy: Fixed investment is still the best choice
The current market sentiment is depressed and affected by a variety of negative macroeconomic events. It is not recommended to operate too aggressively at this time. We still need to observe the current lowest point of Bitcoin at 48,800. It has now rebounded to about 52,500. It remains to be seen whether it can maintain the price of 51,500. If it unfortunately falls below, it may return to the 48,000 range, which is also a relatively low buying point.
In addition to observing the trend of currency prices, the attitude of the Federal Reserve is also a major focus. If the interest rate can be cut earlier or the interest rate cut in September can be increased, it may bring some hope to the current market.
If you are thinking of buying now, it is recommended to start DCA now. The current market sentiment has almost reached the freezing point, and the current price has a high profit-loss ratio. You can avoid missing out on this epic drop in prices through DCA. On the other hand, if the price continues to fall, you can continue to buy chips at a lower price. From a long-term perspective, now is a good time to invest in Bitcoin.
