With all of Bitcoin’s recent successes, like stability well above the $90,000 level, one would expect widespread euphoria to take hold among investors. The reality is more nuanced. While the sticker price may scream a market taken over by greed, upon further inspection the mood is much more subdued. This guest article, sponsored by BlockchainShock, explores what’s causing the rift. Perhaps most interestingly, it examines why the predicted mania just hasn’t quite happened yet—despite Bitcoin values increasingly going through the roof. BlockchainShock is your resource for deep market sentiment analysis and sophisticated technical breakdowns. Explore our in-depth analysis of privacy coins and staking rewards! With a continuously updated news feed, BlockchainShock.com empowers investors and enthusiasts to stay ahead in the fast-paced world of blockchain and digital assets.
Understanding Market Sentiment
Investor sentiment is one of the most important factors in the crypto market, dictating trends from price drops to bear markets. It's not just about individual feelings; it's a collective mood that can drive significant market movements. Policymakers and financial institutions are right to pay attention to investor sentiment to create the right policies and address potential risks. Likewise, investors and risk managers leverage sentiment analysis to drive their investment and hedging strategies. Resources such as the Bitcoin Fear & Greed Index, which are available for other major cryptocurrencies, allow us to better read market sentiment. They are informative barometers of the mood that’s dictating investor sentiment. A high “Greed” score is an early warning that investors are becoming too bullish, which risks forming a market bubble. Conversely, a high “Fear” score reflects a more bearish sentiment and can mean that assets are actually undervalued.
When CME Bitcoin futures contracts were first launched, this move was seen as the professionalizing of the Bitcoin market. The theory was that institutional investors would provide a degree of stability and maturity that the asset class needed. There’s reason to believe that these futures contracts actually have been putting downward pressure on Bitcoin’s spot price. This highlights the deep connection between conventional financial instruments and the volatile cryptocurrency market. While bringing Bitcoin into the mainstream financial world poses its own slew of daunting challenges. One such challenge is added systemic risks. Bitcoin mining consumes a huge amount of energy. This demand is poised to have a major impact on the energy industry, particularly during periods of extreme price volatility.
As Bitcoin’s listed spillover into traditional markets has gained prominence, so too has a heightening regulatory scrutiny. This change would result in much greater overall government interference in the future. Policymakers grew very worried about the use of Bitcoin for black market activities, like money laundering and tax evasion. This has led to calls for greater regulation of the cryptocurrency market, which could dampen investor enthusiasm and limit Bitcoin's potential for further growth. As we saw in 2008, regulation is key to keeping investors safe and our markets without integrity. It does so at the cost of inhibiting innovation and delaying development of the cryptocurrency ecosystem. Regulation and innovation should strike a prudent balance. In the years ahead, we’ll learn what this new balance will look like.
The Altcoin Effect
Shift in Investor Focus
The second major factor easing the “Greed” sentiment is the strength of altcoins, or cryptocurrencies other than Bitcoin. When altcoins start outperforming Bitcoin, investors usually follow the momentum and the money into these spicier usually more lucrative bets. This trend both shows and reflects a broader change in the market dynamics, where investors are looking for and finding higher returns away from Bitcoin. Second, as investors spread risk around their portfolios, there will be less demand for Bitcoin itself. This is possible even if Bitcoin’s price remains inflated.
Bitcoin Dominance
This is one of the most important altcoin indicators. It is calculated by dividing Bitcoin’s market capitalization by the total cryptocurrency market capitalization. A prolonged decrease in Bitcoin dominance historically marks the beginning of an “altcoin season.” As altcoin season progresses, the total market cap of altcoins continues to increase rapidly, garnering the interest of new investors and causing Bitcoin’s dominance to decrease even more. This is a phenomenon that tends to kill Bitcoin’s market sentiment. Investors are getting more and more attracted to altcoins’ rewarding profits.
Market Trends
Altcoin seasons are often marked by massive increases in these altcoins, as well as high levels of volatility. This kind of environment can be downright euphoric for the entire crypto market—even for Bitcoin. Most of the hype is usually directed at altcoins that seem to have the most immediate momentum. The prospect of easy money in altcoins can be alluring. This temptation seems to always obscure Bitcoin’s stability and long-term value, causing investors to fear more with the original cryptocurrency. Certain stories can fuel altcoin seasons. In many ways, altcoin seasons are fueled by narratives. Take the example of decentralized finance (DeFi) and non-fungible tokens (NFTs)—a big driver of this trend. Though sometimes not true, these narratives can bring in fresh capital to the entire crypto space and continue to feed the hype machine of altcoins.
Indicator of Potential Bull Market
Such extreme moves in alts performance tend to be a precursor to a larger altcoin bull market. In 2021, Bitcoin was primarily going up while lots of altcoins lead the way. This trend was indicative of a strong bull market across the crypto space. It wasn’t just Bitcoin’s performance that was lackluster; per BlockchainShock data, 89 of the top 100 cryptocurrencies beat Bitcoin’s gains. Widespread altcoin success drastically improves the entire environment for crypto. This could eclipse Bitcoin’s outperformance altogether, resulting in a relatively muted "Greed" sentiment and a more muted overall sentiment expressed in the form of caution at BTC specifically.
Interplay Between Altcoins and Bitcoin
In the past, altcoin seasons have proven to be quite brief, often only spiking for a month or two. What if altcoin season doesn’t mean altcoins quickly lose their best-of-breed momentum and no longer outperform Bitcoin for a while. This consistent outperformance can have a huge impact on market sentiment towards Bitcoin, as investors may feel that there are better opportunities to be had in the altcoin market. Altcoins and Bitcoin are in a continuous dance with one another in the crypto markets. Together, their dance direction drives both locational price trends and national market optimism. To develop meaningful, data-driven, investment priorities, it is important to understand this dynamic.
Historical Parallels: Learning from the Past
2016-2017 Trend
To make sense of today’s market dynamics, it pays to compare them with prior Bitcoin price cycles. For example, in the 2016-2017 bull run, Bitcoin’s price increased from about $700 to over $19,000. This exponential increase stirred up a storm of “FOMO” or “Greed” as investors scrambled to be part of the action and profit from bitcoin’s increasing price. Disclaimer that this time was right before a huge market collapse. While acknowledging the important discussion around ESG, this event brings to danger of excessive exuberance in the marketplace.
2020-2021 Trend
In much the same way, the 2020-2021 boom saw the price of Bitcoin increase from around $7,000 to over $69,000. A perfect storm of factors combined to fire this explosion. Certainly, increased institutional adoption, the COVID-19 pandemic and government stimulus measures are all to credit. The “Greed” sentiment dominated the general sentiment during this time. Plenty of analysts called for restraint, expecting a market correction that could only be avoided for so long.
Interest Rate Impact
One really curious point has been about the influence of rising interest rates on Bitcoin’s ups and downs. In October 2023, Bitcoin began to recover and rise again. This increase reflected its movement at the last peak in interest rates in 2016-2017. Bitcoin price macroeconomic factors, such as interest rate policies, play a critical role in affecting Bitcoin’s price. There are the far more powerful ways they impact investor sentiment. When rates go down, investors start searching for higher-yielding assets. This frequently brings them down the Bitcoin rabbit hole, increasing demand and thus inflation as well. When interest rates rise, investors rush towards safer, more conventional investments. This and other changes can help pull back the overall demand for Bitcoin.
Halving Event Impact
Another major factor to keep in mind, the Bitcoin halving event, which takes place roughly every four years. The most recent halving took place on April 19th, 2024. Furthermore, it halved the mining reward for each block from 6.25 BTC to 3.25 BTC. Typically, each halving event prompts a bull run. This shrinking flow of new Bitcoin that is available to sell puts strong upward pressure on prices. Yet while Bitcoin halving events have historically preceded bull runs, their exact impact can differ wildly based on prevailing market conditions and trader sentiment.
Post-Halving Price Surge
Following the April 2024 halving, Bitcoin’s price exploded. It reached a record high of $76,999 on November 7, 2024. This price increase following the halving is consistent with what we’ve seen in past cycles. Remember, past performance is no predictor of future achievement. This combination of factors makes the halving event a powerful catalyst for Bitcoin prices to experience a significant bullish impulse. Yet, regulatory developments, macroeconomic conditions, and investor sentiment have an even heavier hand on the market.
Analyst Caution and Market Indicators
Neutral Bullish Market Sentiment
Even with the large price of Bitcoin, technical indicators indicate a neutral bullish market sentiment at 69%. This shows that although the market is overall very bullish, analysts are still a little hesitant to jump all the way in. The Fear & Greed Index is currently at 65, which shows that traders are strongly greedy at this moment. This high score indicates that we are potentially approaching a point where a price correction is due. 65 is high enough to show "Greed" but not "Extreme Greed", which matters. Extreme Greed is a much stronger sign that a correction is around the corner.
Historical Price Cycles
Analysts tend to take into account Bitcoin’s 4-year market cycle by predicting storms — correction — coming on the way. This cycle consists of four phases: accumulation, mark-up, distribution, and mark-down. The accumulation phase is characterized by low prices and sideways trading, as investors gradually accumulate Bitcoin in anticipation of future price increases. During the production phase, Bitcoin too endures dramatic price increases. The increase comes at a time when demand is booming and investors are becoming more optimistic. In the distribution phase, the early investors begin to cash in their profits. This choice results in a significant reduction in the rate of increase in prices and increases volatility. The mark-down phase is a period of rapid price decline characterized by increasing selling pressure and investor capitulation as sentiment turns increasingly bearish. By knowing what these phases look like, investors can better predict when price corrections are likely to occur—further informing their investment decisions.
Halving Event
The April 2024 Bitcoin block reward halving was the most recent of these significant events. If the expected price increase doesn’t materialize, that sets up a classic scenario for a price crash. In fact, historical halving events tended to trigger bull runs. Despite this advance, there’s no assurance that this trend will continue going forward. If the market has already priced in the halving event, Bitcoin’s price could continue to fall. Moreover, other macroeconomic conditions might be tanking investor sentiment even worse, resulting in an overall drop beyond what the lowered supply would suggest.
Long-term Holder Accumulation
The very low Value Days Destroyed (VDD) multiple indicates that, at least relative to the price deployed, long-term holders are buying bitcoin now expecting higher prices in the future. This is seen as a bullish development overall, because it shows that long-term investors have faith in Bitcoin’s performance over the long term. There is still a huge backlog of Bitcoin poised to enter the market. If long-term holders decide to take profits, this supply might come to market at one time. If this accumulation phase ends and long-term holders begin to sell their Bitcoin, it could lead to a significant price correction.
Price Volatility
In the past month, Bitcoin is more or less calm, with price deviations of only 4.56%. Impressively, 18 out of those 30 days—60%—were “green” days with positive price changes. Consequently, this points to a fundamentally healthy and stable market overall. Analysts can continue to call for corrections based on the prevailing market mood and outlying disruptive factors. It’s even more dangerous in an unusual market lockup, where a random news event or regulatory development can send risk assets reeling.
Price Range Projections
Determining the right range of potential prices is essential for investors. Based on the simulations, 95% of the time Bitcoin’s price is projected to be between $30,000 and $448,000. The $6,500 price is considered the worst-case scenario, while on the other end of the scale, Bitcoin might be valued at $901,000 in 10 years. These projections highlight the wide range of potential outcomes for Bitcoin's price, emphasizing the importance of risk management and diversification. Investors need to prepare for upside and downside cases and extremes on both sides. Diversifying their holdings is key; they mustn’t go all-in on one game-changing idea.
Conclusion: A Balanced Perspective
The bottom line is that Bitcoin’s price remains high. Our failure to see widespread “Greed” is due to a combination of several reasons (some innocuous, some more nefarious). Nowadays, investors’ attention has been largely transitioning to altcoins, the coins other than Bitcoin. Some analysts are exercising prudence with market signals and making historical comparisons that point to corrections. Many in the cryptocurrency space are currently fixated on the market’s reaction to the recent halving event. The behavior of long-term holders and general price volatility add to this cooled enthusiasm. BlockchainShock urges all investors to maintain a healthy level of skepticism. They must consider the long-term upside risks as well as the growing downside risks of Bitcoin and the larger cryptocurrency space.
Investing in cryptocurrencies is extremely risky and speculative. Rule #6: Never invest more than you can afford to lose. Whether you’re investing in monetary assets or people, diversification is key to mitigating risk. Investors must take a proactive approach and diversify their holdings through Bitcoin, altcoins, and traditional financial vehicles. Keep a pulse on ongoing market trends and regulatory changes. These are predictable factors that significantly affect the price direction of Bitcoin and other crypto. By knowing the risks and taking proactive steps to mitigate them, investors can set themselves up to be successful in this rapidly evolving market.
BlockchainShock is focused on providing thought provoking analysis and expert blockchain and digital asset industry coverage. We’re helping investors and blockchain enthusiasts learn how to make smart decisions in this fast-moving and exciting new frontier. BlockchainShock.com has a regularly-updated news feed. Armed with comprehensive market intelligence, it’s your go-to guide for keeping one step ahead in the fast-evolving blockchain and digital assets arena.
