Bitcoin Markets Heading Into Potential Accumulation Season

Key points:

• A statement from the Federal Reserve gave investors hope that the current tightening of monetary policy will end in the near future.
• A recent Commitment of Traders (COT) report showed that fund managers increased their long positions in BTC while reducing their short positions.
• Asset managers’ open interest in BTC is now 88% long and 12% short, up from 84% long last week.

The sharp declines in Bitcoin and Ethereum over the past few months have provided bullish investors with an opportunity to accumulate at a low cost. Larger crypto investors continue to explore this opportunity.

Bitcoin has been trading in a tight range for nearly five months, with support hovering around $19,000 most of the time. Ether has fallen to $1,000 but has been hovering around $1,300 for most of the same period. Both are now up a notch with support above $20,000 and $1,500, respectively.

The rate hike came as the Federal Open Market Committee (FOMC) raised interest rates for the fourth time in a row by 75 basis points, in response to the Fed's painstaking efforts to curb inflation without tipping the U.S. economy into a deep recession. The cryptocurrency market largely reacts to central bank currency swings and other macroeconomic events, typically rising on encouraging news and falling when investors are more pessimistic. This reaction is normal in asset markets across all walks of life.

During the most recent rate hike, BTC’s Average True Range (ATR) fell by around 71%. ETH ATR is down 52%.

BTC 02.11.22

However, this model differs in one respect – BTC and ETH are less volatile than traditional assets. Will this trend change? 

In comments following the Fed's announcement, Chairman Jerome Powell reiterated the bank's months-long commitment to curb price increases. But a statement from the Federal Reserve earlier in the day gave investors hope that the current tightening of monetary policy will end in the near future.

"In determining the pace of future growth within the target range, the Committee will consider cumulative monetary policy tightening, the lag with which monetary policy affects economic activity and inflation, and economic and financial developments," the FOMC said.

A dovish signal could send BTC and ETH higher, breaking their recent steady pattern.

Fund managers will certainly -- and wisely -- benefit from this possible turnaround. A recent Commitment of Traders (COT) report showed that fund managers increased their long positions in BTC while reducing their short positions. Asset managers’ open interest in BTC is now 88% long and 12% short, up from 84% long last week.

Since wealth managers typically have larger amounts of deployable capital, they have the opportunity to influence market prices through their activities.

On-chain, the BTC exchange stablecoin ratio hints at a bullish feeling. The tool essentially measures the number of stablecoins on the exchange in terms of BTC. When the ratio falls, it means increased purchasing power, as investors typically advertise stablecoins before buying assets.

Whether fund managers have picked the right price point for long positions will become clear over the next 12 months, but they appear to be ahead of the curve.