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After Terra’s implosion, the cryptocurrency industry has reached a critical point in its history. Market participants remain sidelined while uncertainty reigns.
Crypto Investors in “Extreme Fear”
Fear, uncertainty, and doubt have taken over in the cryptocurrency market.
Over the past seven months, the cryptocurrency market has lost more than $1.7 trillion in value. Though Bitcoin is now trading 56.5% short of its all-time high, the downward momentum appears to have affected market sentiment. Over the past few days, the Terra ecosystem’s dramatic collapse has also likely contributed to the negative sentiment.
The Crypto Fear and Greed Index (CFGI) has dropped to its lowest level in nearly two years. This popular technical index analyzes the emotions and sentiments among market participants from different sources, exploring metrics such as volatility, volume, social media, surveys, and market dominance. Each value is combined into one number between 0 and 100, with 0 representing “extreme fear” and 100 representing “extreme greed.”
The CFGI currently ranks at an 8, which resembles the same market sentiment recorded around the COVID-19 crash of March 2020.
Despite the prevailing negative sentiment in the cryptocurrency market, the Net Unrealised Profit/Loss (NUPL) suggests Bitcoin and the rest of the market could face more pain ahead.
This on-chain metric relies on multiple data points to demonstrate investors’ potential motions at a given time, which can help in determining price movements. The NUPL essentially anticipates shifts in market sentiment, which can be used to predict to peaks and troughs in the market.
According to the NUPL, market sentiment shifted from Anxiety to Fear following Terra’s death spiral. However, investors’ emotions have not yet hit “Capitulation” to mark the end of the downtrend like in previous cycles.
The Entity-Adjusted URPD suggests that Bitcoin could trend down toward $19,000 if it registers a close below $27,000. This on-chain metric shows the price at which the current set of locked-up Bitcoin was created to show the number of tokens moved within a particular price bucket.
It anticipates that the largest concentration of on-chain volume sits between $32,000 and $40,000, which serves as a stiff resistance wall.
While investing when sentiment is low has historically served cryptocurrency investors well, the market could be bound for another downswing before it hits a bottom. Bitcoin has historically sustained above its previous cycle’s high, but a dip below $19,000 would break that trend. If it tumbles, Ethereum could slide as low as $800.
Bitcoin would likely have to slice through the $40,000 supply barrier to hint at a potential trend reversal. Plus, on-chain metrics would have to turn bullish for it to sustain a new uptrend.
Disclosure: At the time of writing, the author of this piece owned BTC and ETH.