There is still very heightened fear in the market, but Bitcoin’s Relative Strength Index (RSI) shows some oversold condition. The crypto industry needs to see “heavy investor inflows” to break out higher and enter the bull mode.
- One of the bloodiest months in Bitcoin’s history is now coming to an end.
- After having a spectacular Q1 2021 and Q4 2020, the leading cryptocurrency is on for a red quarter.
April recorded a mere 1.7% loss after striking a hatrick of green months in 2021 and a total of six green months in succession. Now, May is heading for its worst month.
In the last five years, before May 2021, November 2018 during the bear market marked the worst month with 36% losses. March 2020 saw Bitcoin price falling to $3,800 only recorded a 25% drop, even Jan. 2018 and March 2018 registered bigger losses at 27% and 32%, respectively.
This month, the price of Bitcoin went from about $56,800 to as low as $30,000 on Coinbase and nearly $28k on other crypto exchanges. As of writing, BTC/USD is trading around $37,000, representing a 35% loss in the month right now.
At -40% Bitcoin heading for its worst month on record… pic.twitter.com/QVs12iMJmE
— Richard Galvin (@richwgalvin) May 31, 2021
It is to be seen if May 2021 would end up being the worst as the second half of 2011 was also a brutal one with down months recording losses of 38.92%, 37.46%, and 36.26%. Also, Dec. 2013 had a 34.6% drop.
The first half of the month showed greed in the market, with the index having a reading of 73 only to drop to 10 in the latter half of the month. Today, we see some relief with a reading of 18.
However, in the South Korean crypto market, sentiment remains of exhaustion, noted DooWanNa, co-founder of StableNode. He added,
“Much fewer alt discussions, especially Korean alts, now. Many are focusing on BTC movement as many know if BTC nosedives, they are all screwed anyway. ADA and ETH holders are still optimistic. But for DOGE, XRP, ETC holders? Not so optimistic.”
But this much fear in the market means we could see the market change direction soon. Economist and trader Alex Kruger said,
“When the Crypto Fear & Greed Index gets this low, a strong rally often follows. The index is now as low as it was the day after Black Thursday in 2020.”
Also, Bitcoin’s Relative Strength Index (RSI) recently dropped to 23 and is currently around 38. When the RSI is below 30%, an asset is usually considered oversold and overbought above 70%.
Relative Hopium Index pic.twitter.com/MvZy1acFip
— Alex Krüger (@krugermacro) May 30, 2021
According to Kruger, the fact that Bitcoin had its 54% retracement combined with a supportive macro environment meaning ample liquidity — interest rates are still virtually zero and money printing isn’t stopping — increasing adoption and record stablecoin balances support the bull case for cryptocurrencies.
But at the same time, there isn’t a lack of bearish factors either. The first being China not done cracking down on crypto. However, China’s strong stance against Bitcoin despite the central bank governor calling it an “investment asset” last month came just ahead of the politically sensitive 100th anniversary of the ruling Communist Party on July 1.
Also, the exchange rate between China’s yuan and the stablecoin Tether, one of the key gauges of local sentiment, fell 4.4% after the government’s warning but has since recouped over half of the loss, as per data platform Feixiaohao.
Furthermore, reduced corporate demand due to ESG, reduced institutional demand, funds having bought the top, taper talks worsening the macro environment, short term levered demand wiped out, with gas prices on Ethereum very cheap suggesting retail being dead, and incoming US regulations add to bearish concerns. Kruger noted,
“For the Bull Case to emerge victorious, the crypto industry needs to see heavy investor inflows (which I expect). This coming week is crucial.”