Bitcoin’s (BTC) rescue rally has seen it rise 21% from its August 5 low of $49,577. The recovery has also been witnessed in the broader cryptocurrency markets, with the overall market cap up 20.5% since August 5, reclaiming the $2 trillion level.
Market participants are now looking for clues as to whether the cryptocurrency market has bottomed and is in the early stages of a trend reversal.
Uncertainty may decrease after September FOMC meeting
Some analysts believe investors will hold their positions until the Federal Reserve decides whether to cut rates at its next FOMC meeting scheduled for September 18.
Although there is widespread expectation that the Fed will cut rates to a range of 5% to 5.25%, there is significant uncertainty regarding the health of the U.S. economy.
Federal funds target rate probability for September 18. Source: CME Group
On September 12, the US Consumer Price Index (CPI) showed a slowdown in inflation year-over-year, while the Producer Price Index (PPI) showed an increase from the previous month on September 12. Also, the number of unemployed persons increased significantly to 230,750, compared to the expected 227,000.
After the Fed raised rates throughout 2023, interest costs on the deficit increased 23% in the first half of 2024. The central bank argues that more “good” inflation data is needed to show that inflation is on a sustainable path to the Fed’s 2% target.
In late August, Federal Reserve Chairman Jerome Powell made dovish comments confirming that the time had come for the Fed to cut its key policy interest rate.
The main indicator that the cryptocurrency market price correction may have bottomed out comes from the traditional market. Investors have become more speculative as expectations of improved macroeconomic conditions have grown. The Russell 2000 Index, which tracks small and mid-sized U.S.-listed companies, has risen 4.3% over the past seven days. The S&P 500 Index has also risen 3.56% over the past week.
Emotional surrender signals a market bottom
Extreme fear is a signal of a market bottom as investors become more cautious about holding assets, preferring fiat currencies and stablecoins.
Experienced traders prefer to buy when a sentiment indicator like Alternative.me’s Crypto Fear & Greed Index indicates extreme fear, and reduce exposure when the index indicates greed.
According to this indicator, extreme fear may be a sign that investors are overly concerned, but it may also be a buying opportunity as capital rotates out of weak hands.
Current market sentiment is “fearful”, with the index rising to 32, reflecting “extreme fear” from below 20 in early August.
A Crypto Fear and Greed Index reading below 20 indicates extreme fear. Source: Alternative.me
In the past, the “extreme fear” figure mostly coincided with peak sales.
Santiment, a data market intelligence firm, reported a significant shift in crowd sentiment last week, with “the percentage of positive comments more than doubling the number of negative comments” for the first time in 12 months.
“Bitcoin’s positive sentiment suddenly soars to a year-high, while Ethereum’s is more dovish on Vitalik’s concerns.” Positive vs. negative social media sentiment for BTC and ETH. Source: Santiment
However, the on-chain data provider warns that this sudden change in Crown optimism is concerning: “Prices are traditionally at their peak when this level of FOMO exists.”
“Expect traders to “roll back” and start expressing FUD again. As the crowd starts to show doubt again, BTC will truly start to test its March all-time high market cap.”
relevant: MicroStrategy adds 18,300 Bitcoins, now holding $14.14 billion worth of BTC.
Bitcoin Miners Surrender
Bitcoin miners are ramping up their operations as the network hashrate hits new all-time highs following the capitulation incident earlier this month, according to data from on-chain analytics firm CryptoQuant.
Bitcoin’s network hash rate hit a new record of 742 exahashes per second (EH/s) on September 1, recovering from a 10% drop in early July. The expansion followed the recent Bitcoin price decline and the record hash rate (average revenue per unit of mining power), indicating a positive sentiment among miners after the sell-off of the past few months.
Bitcoin hashrate. Source: CryptoQuant
Hash rate refers to the total computing power used to secure and verify new transactions on the Bitcoin network. Every second, millions of calculations are solved to ‘earn’ new blocks, a process broadly referred to as mining.
As the network hashrate increases, the cost of mining Bitcoin also increases as miners must upgrade to more powerful mining equipment, expand their operations, and use more energy to remain competitive.
Likewise, Bitcoin mining difficulty has also reached an all-time high, as seen in the chart below.
Bitcoin Mining Difficulty. Source: CryptoQuant
The increasing hash rate and the resulting high difficulty continue to plague miner profitability. August 2024 was the worst month for miner profitability since September 2023, with major mining companies facing revenue pressure from multiple sources.
These reduced revenues and high costs have led mining companies to consider a number of options to increase their profits and stay in business, while others have chosen to scale back their operations. This has led to a phenomenon known as miner capitulation, which typically occurs near local Bitcoin price lows during bull markets.
This article does not contain any investment advice or recommendations. All investment and trading moves involve risk, and readers should conduct their own research when making decisions.