Research report outlines why the crypto market might be on the verge of a reversal

As November begins, analysts are busy dissecting the major market movements that occurred in October. As Bitcoin (BTC) remained relatively unchanged in October with only a 5.89% gain, Arcane Research Senior Analyst, Vetle Lunde, mapped out the direction the market could take in the next few months.

“Optober”, a reference to bitcoin’s sharp historical performance during the month of October, was a common theme in many threads on crypto Twitter, and according to Lunde, it seems to have happened. The data shows that BTC and exchange tokens outperformed the large caps index through October 26.

Elon Musk’s Twitter takeover helped push the large-caps index above bitcoin with a 20% monthly gain. Dogecoin (DOGE) helped cement large-cap strength by producing a 144% gain over the past seven days.

Weighted index performance for October 2022 performance. Source: Arcane Research

October’s bitcoin spot market was driven by increased volume and lower volatility, while benefiting from a short squeeze that briefly strengthened the market. According to Lunde, the last week of October saw the largest short liquidation volume in crypto since July 26, 2021.

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While this activity helped push Bitcoin up 6%, Ether (ETH) and Binance Coin (BNB) saw more notable gains at 18% and 19% respectively.

7-day average BTC USD daily volume with and without Binance. Source: Arcane Research

The short squeeze helped provide an overall boost but Lunde concluded that the momentum did not create a big change in BTC price. BTC spot volume is up 46% over the past seven days and the 30-day volatility index is at a 2-year low. Furthermore, the 7-day volatility index is sitting at 2.2%, while the annual average is 3%.

30-day and 7-day volatility for BTC. Source: Arcane Research

Comparing volatility to the current short squeeze to previous short squeezes, Lunde said:

“The July 26 low saw a daily high-low difference of 15% as markets moved higher in a hurry, while the October 25 and October 26 moves saw daily high-low differences of 5% and 6%, respectively. Further, momentum has stalled, with traders looking for a longer consolidation. indicating that the brace should be.”

Bitcoin’s price is attractive, according to Lunde, the best approach for this market is to dollar cost average in the short term rather than using leverage. Bitcoin is experiencing uniquely low volatility and follows the US equity market closely so tracking Q3 earnings reports is important.

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Fed policy will continue to dictate bitcoin prices

Federal Reserve Chairman Jerome Powell is set to speak about US monetary policy, inflation and upcoming rate hikes after the November 2 Federal Open Market Committee (FOMC) meeting.

According to Lunde there are two scenarios to look out for:

“Scenario 1: Jerome Powell remains astute in the fight against inflation and prepares the market for further growth. This, in my opinion, is the most plausible scenario. In this environment, I expect the correlation between BTC and other asset classes to remain high. 4.5-month long trading range To hold firm, with moist activity, leads to a suitable environment for long-lasting stacking sats.”

“Scenario 2: Jerome Powell provides subtle pivot signals. In this scenario, I see the correlated market environment softening. Last week, we saw how unique structural crypto-related market activity reduced correlation through a substantial short squeeze. Pivot expectations will lead.” Similar responses and revive BTC’s digital gold story.”

Under the second scenario, some analysts believe that crypto could begin to rebound from US equities. This reaction may mirror the reaction of the crypto market in mid-2020 which pushed the price of Bitcoin above $20,000.

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What to expect in the long run

In the long term, Lunde predicts that the adoption of Bitcoin and digital assets will continue as an emerging trend. Pointing to a Fidelity survey showing an increase in interest from institutional markets in 2022, Lunde remains bullish on BTC at current prices.

Although Bitcoin is seeing fewer on-chain transactions, increased participation from a clear regulatory framework is likely in the long term. A clear pattern may eventually emerge if the American electorate begins to consider crypto policy when voting.

Bitcoin’s muted growth, its correlation to equities and the lingering downtrend for nearly a year remain a threat, but many analysts are convinced that bitcoin’s current value is undervalued.