As a seasoned researcher with over a decade of experience in the financial markets, I have witnessed my fair share of market cycles – from the 2008 global financial crisis to the dot-com bubble burst. The current state of the crypto market is reminiscent of those periods, and history tends to repeat itself, albeit not always in the same manner.
It appears the cryptocurrency market might be experiencing a slight bubble, according to certain experts. They suggest that, given the current parabolic rise, a potential market crash could occur prior to the next significant upward movement.
Historically, certain signals have been significant in anticipating a potential cryptocurrency market collapse. At present, some of these red flags are becoming apparent, including the craze for meme coins, inflated crypto futures financing costs, and excessive optimism among traders.
Is Crypto Market Going to Crash? 3 Signals Point to a Correction
In the world of cryptocurrencies, market crashes are relatively frequent, sometimes even occurring during periods of growth (bull markets). Watching for these warning signs can aid in predicting possible corrections, enabling you to handle your risk more efficiently.
Historically, there are some clear warning signs that often lead up to an incident. In this case, three significant ones have surfaced:
On November 13, the Crypto Fear & Greed Index indicated “extreme greed” at a level of 84, one day following Bitcoin‘s new record high of $93,300. This is the same level of greed as was seen in April. It’s important to note that after reaching this level of greed before, Bitcoin underwent an 18% correction, falling from $69,135 to $56,500 between May 1 and the subsequent weeks. This pattern might suggest another potential correction is imminent; however, most analysts continue to be optimistic about Bitcoin’s long-term prospects in 2025.
On November 12, Bitcoin nearly reached $90,000 in value following a highly successful week that saw gains not seen since the U.S. banking crisis earlier in the year. In just seven days, the digital currency boosted its total market worth by over $413 billion.
As per Kris Marszalek, the co-founder and CEO of Crypto.com, the levels at which people are borrowing funds to open trading positions are becoming too high and may not be sustainable.
Today, on X’s platform, Marszalek advised that it’s crucial to tidy up leverage prior to an anticipated attack targeting $100k. Additionally, he encouraged investors to handle their risks prudently.
Leverage needs to be cleaned up before attack on $100k. Please manage your risk carefully.
— Kris | Crypto.com (@kris) November 12, 2024
On November 13th, data from CryptoQuant indicated that the overall Bitcoin leverage ratio across all crypto exchanges stood at 0.215, slightly lower than the previous day’s figure of 0.217. This level was last observed in October 2023, marking a significant high.
How To Spot The Crypto Crash Before It Happens?
Simultaneously, a series of warning shots indicate that investing in cryptocurrencies can be risky. A red flag indicating this is the frenzy surrounding meme coins. Coins like Pepe experienced extraordinary rallies (up to 700%), followed by a crash. Some analysts foresee Pepe reaching as high as 1500%. Meme coins are projects that lack practical use and rely solely on hype, making them unpredictable and potentially destabilizing for the market.
The reason for caution includes sky-high futures funding rates. Perpetual futures let traders use leverage, but rising funding rates signal unsustainable speculation. Recent extreme rates on a heatmap reveal risks of mass sell-offs if prices drop.
The RSI chart flashes red as a cautionary signal. The Relative Strength Index (RSI) of Bitcoin and other assets suggests rising buying demand, but when the RSI surpasses 70, it signals an overbought market, which could lead to a sell-off. At the moment, it is approximately 60.
As an analyst, I’m keeping a close eye on the Crypto Fear and Greed Index, which has spiked to 84, indicating ‘extreme greed’ among investors. While it’s important to note that past trends may not always predict future events, it’s worth mentioning that such high readings have historically been followed by market corrections. I urge caution and careful consideration when making investment decisions in this context.
The unpredictability we’re experiencing is intensified by extreme market swings, which can hint at a significant shift but also pose the threat of sudden corrections. The Bollinger Band Width Percentile Indicator, however, indicates heightened volatility, implying that a steep decline might be imminent. Currently, the actual volatility hovers around 50%.
Regardless of his skepticism towards cryptocurrency, it could be prudent to follow the counsel of traditional investor Warren Buffett: “Buy when others are selling in panic, and sell when others are buying in excitement.
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2024-11-13 21:32