HomeCryptoBitcoinAnalysis of the Bitcoin price in relation to the market sentiment

Analysis of the Bitcoin price in relation to the market sentiment

Over the weekend, the price of Bitcoin fell back below $30,000, fueling traders’ fears of a bearish continuation in the coming months.

Market sentiment is now caught between fears of a prolonged bear market and confidence in a resumption of the bull phase.

Let us analyse the situation together.

The price of Bitcoin and digital asset flows

The price of bitcoin fell sharply over the weekend after Binance temporarily suspended BTC withdrawals to its users due to heavy network congestion, mainly caused by a disproportionate increase in transactions on the Ordinals protocol.

Meanwhile, digital asset investment products saw outflows of $53.7 million, marking the third consecutive week of negative sentiment for this type of asset.

However, if we look at the data since the beginning of the year, we see that values are still positive by $19 million in an overall picture in which “Proshares ETFs/USA” and “ETC Issuance GmbH” lead the way with market flows of $181.6 million and $88.4 million respectively.

The worst performer appears to be 3iQ Corp/Canada, with weekly outflows of $19.4m and YTD outflows of $207.7m.

In total, assets under management in these investment funds stand at $34.23 billion, while trading volumes are 16% higher than at the start of the year.

crypto etp flows

Looking in more detail, bitcoin was once again the asset most targeted by investors in this type of regulated product, with outflows of $31.8 million last week and a total of $46 million since the beginning of the year.

In this context, Bitcoin accounts for $22.74 billion or 66% of all money invested in the asset class.

Although the outlook does not look the best at first glance, sentiment in the US has turned positive with inflows of $18 million and the largest outflow in history for “short-Bitcoin” products of $23.1 million. 

In other words, investors are unwinding their bets on future declines in the price of BTC.

Ethereum, the second largest cryptocurrency by market cap for the week, saw smaller outflows of $2.3 million out of a total of $7.86 billion managed by savings funds.

The only altcoin to see positive flows was Solana with $3.4 million, but this was a negligible amount.

flows asset

How to analyse crypto market sentiment

The price of Bitcoin moves according to several conflicting variables and logics, one of which is undoubtedly market sentiment.

There are several ways to analyse the sentiment of the crypto market, apart from monitoring the money flows of digital asset investment products managed by providers listed on traditional markets.

Firstly, if you want to get in touch with the short-term sentiment of investors, you can take a look at the “Fear and Greed Index“, which shows the confidence of investors in the crypto market on a scale of 0 to 100.

Extremely high levels are usually a good time to sell and take profits, while fear in the sector, with the index in the red, could be an opportunity to buy at a discount.

The situation seems neutral at the moment, in line with the analysis in the previous paragraph, 

It is important to remember that this type of indicator has a 24-hour lag.

fear greed index

Another way to analyse market sentiment is to look at changes in open interest in the futures markets by relating this data to the price of bitcoin.

Open interest represents the number of derivative contracts that have not yet been closed, given by the sum of the long and short open positions at a given point in time: this data is extremely important because it helps us to understand the interest of financial traders in staying in the market rather than choosing other investment venues.

The main futures brokers are Binance, Bybit, OKX, CME, Deribit and Bitmex.

Currently, total open interest on all exchanges stands at $10 billion, about 30% higher than at the beginning of the year, but about 15% lower than in mid-April.

If total open interest were to exceed $15 billion, we would have another reason to be bullish on the immediate future of this market.

future open interest crypto prezzo bitcoin

The last way, perhaps the most spartan, but also the most effective way to understand market sentiment for bitcoin and other cryptocurrencies is to observe the reaction of investors on Twitter in relation to market price movements.

By first doing the work of selecting the most crypto-friendly profiles and having a follower base of at least 20,000, it is possible to understand in real time what investors are thinking.

Typically, markets move in the opposite direction to the expectations of the masses, so by spending time analysing tweets and comments, we can easily understand which scenarios are preferred by the Twitter audience and get them to choose exactly the opposite direction.

Technical analysis of the price of bitcoin

Bitcoin is currently trading at $27,537 with a market cap of $533 billion and a volume of $13.4 billion over the last 24 hours.

The situation on the technical analysis front is at a point of maximum indecision, which is somewhat reflected in the trader sentiment analysis, which is caught between bullish and bearish views.

In the daily time frame, prices have fallen below the 60-period moving average, marking the fifth consecutive daily candle in the red (not yet completed).

If there is a dip below the support level of 27,000 dollars, we could see a sharp decline, at least to 24,000 dollars in the short term.

This is the most likely hypothesis at the moment, given the bearish divergence that has formed on the Relative Strength Index (RSI).

Volumes are still low and there are no signs of a rebound that would contradict the bearish continuation theory in the short term.

Furthermore, after the rally in the crypto market in Q1 2023, it seems logical to see a situation where traders take profits on their still open positions.

grafico prezzo bitcoin
Daily Bitcoin price chart (BTC/USD)

On larger timeframes (weekly and monthly), the situation does not look so dire and the bull/bear conflicts may resolve themselves in a period of stability and laterality in BTC prices.

While we wait for the next macroeconomic data on US inflation and see how the issue of the Bitcoin mempool being clogged by BRC-20 token transactions will be resolved, the best choice to make right now is probably to be patient and wait for the next BTC price movements.

A small curiosity at the end of the article: the Ethereum Foundation has started to sell some ETH: every time this has happened in previous years, this event has marked a small peak in crypto market prices.

Be careful traders!

Alessandro Adami
Alessandro Adami
Graduated in "Information, Media and Advertising", for over 4 years interested in the cryptocurrency and blockchain space. Co-Founder of Tokenparty, community active in spreading crypto-enthusiasm. Co-founder of Legal Hackers Civitanova marche. Information technology consultant. Ethereum Fan Boy and supporter of Chainlink oracles, strongly believes that smart contracts will be central in the development of society.