Seasoned analysts and the media, including Cointelegraph, recently highlighted a number of indicators suggesting that Bitcoin’s bull run (BTC) may be overdone.
Such bearish views include one from John Bollinger, creator of the Bollinger Band, who suggests traders use stops after signs of a “top” have formed.
However, it is worth noting that the Bollinger Bands and the indicator of fear and greed tend to be out of date. As a result, these stocks tend to get overbought when there is a 30% weekly gain, such as the recent rally.
As crypto analyst TechDev_52 rightly questioned, there is no way of telling whether we are entering into a potentially big correction or an ongoing bull run.
Now you know why they call it a bear trap. It’s convincing.
How do you recognize the “trap” from “above”? One of the other’s pointy tires.
– TechDev (@ TechDev_52) May 16, 2021
Popular YouTuber and trader Nebraskangooner, for example, suggests that the recent high of $ 56,000 could be the upper range of a bullish channel that has been leading Bitcoin since late July.
OBV increased but still not erupted.
I would like to see bullish consolidation near the top leading to a breakout of the OBV with a price breakout for a significant bullish continuation. https://t.co/btm5aW7WTW pic.twitter.com/kPqwOSMgE1
– NebraskanGooner (@nebraskangooner) October 6, 2021
The “greedy” mode can last for weeks or months
Returning to the Fear and Greed indicator, here are a few examples where such a metric can stay overbought for more than three or four weeks.
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 trading volume, futures open interest, social metrics, and search data to calculate market hype.
It therefore took four weeks for a significant Bitcoin price correction to take place after the warning sign appeared. Those who sold in the first few days after the indicator flashed missed the 70% recovery that followed.
A similar pattern occurred between July 23rd and August 25th, while Bitcoin price continued to rise. Yes, the correction always comes at some point, but how many weeks or months later?
Bollinger Bands, a good short-term indicator
John Bollinger is a seasoned and respected trader, but his indicator is a moving average plus some deviation based on current volatility. In short, a weekly movement of 30% will be outside of this range most of the time, given the usual daily volatility of 4.5%.
Sure, a small correction tends to happen when Bitcoin breaks the upper Bollinger Band, but that has absolutely no correlation to price for the next two to four weeks.
Funding rate was neutral
Finally, one should analyze the coverage ratio, a fee charged by derivatives exchanges to balance the risk between buying long (buyers) and short selling (sellers) at different levels of leverage. In fact, when there is a buying wave, the indicator rises.
The current average rate is 0.04% every 8 hours or 0.8% per week, nothing out of the ordinary. For example, in December 2020 it stayed above 1.5% per week for the whole month and then in February 2021.
Similar to the fear and greed indicator, this metric shows that buyers are becoming too confident as it exceeds 0.10% every 8 hours, but not necessarily an alarming level.
As long as buyers are confident that the rally continues, paying a 1.5% or even 3% weekly fee won’t force them to close out long-term leverage. For example, if a lack of bitcoin supply on the exchanges drove the recent rally to $ 56,000 as holders pile up, it could be around $ 80,000 or higher.
However, there could be problems if a bearish event occurs in the near future, such as B. a rejected application for exchange-traded funds or a draconian US ban on stablecoins. In such a case, Bitcoin will not break the all-time highs and these seemingly outdated indicators will eventually “work”.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your own research when making a decision.