Seasoned analysts recently pointed out several indicators suggesting that Bitcoin’s bull run may be overstimulated.
BTC price 4-hour chart | Source: Tradingview
In it, John Bollinger, the father of the Bollinger Band pattern, advises traders to use a conditional trailing stop order when the “top” signs form.
However, it is worth noting that Bollinger Bands, as well as the indicator of fear and greed, are metrics that tend to lag behind. As a result, they often show overbought levels when the price has increased 30% weekly, such as the last move.
As asked by analyst TechDev_52, there is no way of telling whether we are entering a potentially major correction or a bullish continuation.
“Now you know why they call it a trap. bear not yet? It’s convincing. How do you know bag “Trap” from above? “
The source: TechDev_52
For example, popular YouTuber and trader Nebraskangooner sees the recent high of $ 56,000 as possibly the higher section of the bullish channel that has led Bitcoin since late July.
OBV is recovering but has not yet fully erupted.
Hit the top of the channel.
– NebraskanGooner📈 (@nebraskangooner) October 6, 2021
“OBV is increasing, but has not yet erupted. Touch up Channel. Wait Move bullish consolidation in above Range that leads to an OBV breakout with a price breakout to the continued to grow strongly ”.
The “greedy” mode can last for weeks or months
Back to the fear and greed indicator, here are some examples where the metric can stay overbought for more than 3 or 4 weeks.
Bitcoin index Fear and greed (above) and Bitcoin price at Bitstamp (below) | Source: btctools.io, TradingView
Note that Bitcoin’s fear and greed indicator stayed above 65 from January 29th to February 26th, suggesting that traders were overconfident.
This metric uses trade volume, futures open interest, social data, and search data to calculate market hype.
It took 4 weeks since the warning sign appeared before the Bitcoin price had corrected itself significantly. Anyone who sold in the first few days as soon as the indicator flashed, then missed the 70% profit.
A similar pattern also occurred between July 23rd and August 25th as the BTC price continued to rise. Yes, the adjustment will always come at some point, but after how many weeks or months no one knows.
Bollinger bands: USa good short term indicator
John Bollinger is a seasoned and respected trader. Its indicator consists of a moving average plus some deviations based on current volatility. In short, the 30% weekly gain is out of this range most of the time, given the usual 4.5% daily volatility.
Bitcoin price and Bollinger Bands 20 days | Source: TradingView
Small corrections tend to occur when Bitcoin breaks the upper Bollinger Band, but that’s completely uncorrelated with price over the next 2 to 4 weeks.
Funding rate is neutral
The funding rate is a fee charged by derivatives exchanges to balance the risk between long (buyer) and short (short seller) as their leverage varies. If buying activity intensifies, the indicator will surely increase.
F.Bitcoin 8-Hour Perpetual Futures Unding Rate | Source: Bybt.com
The current average rate of 0.04% every 8 hours or 0.8% per week is nothing out of the ordinary. For example, in December 2020 it stayed above 1.5% per week for the whole month and then fell again in February 2021.
Similar to the fear and greed indicator, this metric suggests that if it exceeds 0.1% every 8 hours, buyers become too confident, but not necessarily alarming.
As long as buyers are confident that the momentum continues, paying a 1.5% or even 3% weekly fee will not force them to close their leveraged long positions. For example, if a lack of bitcoin supply on the exchanges drives the recent price surge to $ 56,000 from holder accumulation, we could see $ 80,000 or more.
However, the possibility of a crash still cannot be ruled out if a bearish event occurs in the near future, such as a denied Bitcoin Exchange Traded Fund (ETF) application or a ban. In such a case, Bitcoin will not break the all-time high and the above-mentioned lag indicators will “work” at some point.
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Disclaimer: This article is for informational purposes only, not investment advice. Investors should research carefully before making a decision. We are not responsible for your investment decisions.
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According to Cointelegraph