Market Wrap: Bitcoin Drops as Indicators Show Extreme Optimism

Bitcoin’s price slipped to the $62,000 area on Thursday as indicators suggest bullish sentiment is near extreme levels, which typically precedes a price pullback.

The cryptocurrency’s price was down about 5% over the past 24 hours after failing to sustain an all-time high of almost $67,000 on Wednesday.

The crypto Fear & Greed Index remained elevated in “extreme greed” territory, suggesting that investors who accumulated positions around the $30,000 BTC price could start to take profits.

Analysts also noted signs of excessive optimism in the bitcoin futures market, although some expect price pullbacks to be short-lived.

“Despite the recent setback, we remain very bullish about the current crypto cycle for at least another five to six months,” James Cox, CEO of Taipan Trading and Investments, wrote in a Thursday investment memo. The firm reduced trading during the September crypto sell-off and later deployed a large cash position to BTC in October.

Looking ahead, traders and analysts will be monitoring Valkyrie Investments’ bitcoin futures exchange-traded fund (ETF), which will begin trading in the U.S. on Friday under the ticker BTF.

Latest prices

• Bitcoin (BTC): $62,700, -5.54%
• Ether (ETH): $4,079, -0.69%
• S&P 500: $4,549, +0.30%
• Gold: $1,784, +0.17%
• 10-year Treasury yield closed at 1.67%

BITO trading activity surges

The ProShares Bitcoin Strategy ETF (NYSE: BITO) had significantly higher trading volume over the past two days relative to other large exchange-traded funds (ETF). This reflected strong investor demand for BITO, an ETF focused on bitcoin futures, and achieved nearly $1 billion in assets in just its second day of trading.

“The introduction of this product is a net positive for the [crypto] industry. Since ETFs are traded in all traditional brokerage accounts, BITO creates a frictionless avenue for thousands of professional financial advisors to achieve liquid exposure to bitcoin without needing to endure a learning process,” global advisory firm FundStrat wrote in a Thursday newsletter.

Indicators show extreme market optimism

The crypto Fear & Greed Index reached a six-month high over the past week, which signaled “extreme greed” among market participants.

“It’s not unusual to see the index fluctuate at such high levels,” Arcane Research wrote in a Tuesday newsletter. “Throughout the bull market from November until April, the index mostly remained in this area [current levels], with periods of decline into the fear area during sudden sharp sell-offs,” Arcane wrote.

Excessive optimism is also evident in the bitcoin futures market. For example, the average BTC funding rate, or payments to long or short traders, is at the highest level since August. Elevated funding rates often lead to temporary price pullbacks, according to CoinDesk’s Omkar Godbole.

“Although a positive funding rate represents an upbeat market mood, a very high reading indicates that the leverage is heavily skewed on the bullish side and often paves the way for price pullbacks,” Godbole wrote.

Traders anticipate an ether ETF

Options traders are betting big on ether’s turn for an ETF, reported CoinDesk’s Muyao Shen.

Data reveals strong purchase activity on ether’s $15,000 call options (the right to buy the underlying asset in the future at a predetermined price) expiring March 25, 2022 – a far cry away from the current spot price around $4,000.

Altcoin roundup

• Associated Press taps Chainlink for elections, sports data: The Associated Press (AP), the 175-year-old news agency, will provide economic, sports and elections data to Chainlink, a system that provides information feeds to blockchains and triggers digital contracts to carry out transactions. The partnership, announced Thursday, is another example of an iconic, mainstream brand embracing blockchain technology, while also showing Chainlink’s plans to expand the reach of decentralized finance (DeFi) into new areas.
• Worldcoin, now valued at $1B, has grand plans to get you to gaze Into the orb: Worldcoin announced Thursday it raised $25 million from investors including Andreessen Horowitz (a16z), Coinbase Ventures, Digital Currency Group (the parent company of CoinDesk) and angel investors, including crypto billionaire Sam Bankman-Fried and Reid Hoffman, the co-founder of LinkedIn. The company is currently valued at $1 billion. The Orbs are handled by independent entrepreneurs Worldcoin calls “Orb Operators,” who take the devices into the world – say remote villages and metro stations and university campuses – and convince people to sign up for free worldcoin with an eye scan. Orb uses the eyescan to create a unique identifier, called IrisHash, which ensures the signee is human and has not collected worldcoin before.
• NFT artist Brian Frye wants you to steal his intellectual property: Brian Frye, a conceptual artist, film maker and law professor, encourages people to plagiarize everything he’s ever created or said, reports CoinDesk’s Daniel Kuhn. This pro-plagiarism stance is part of Frye’s continuing campaign against copyright, the legal instantiation of the idea that ideas can and should be owned. This contrarian opinion has brought him to the world of non-fungible tokens (NFT), the blockchain-based technology often credited with bringing “scarcity” to digital goods.

Relevant news

• Bitcoin Tumbles to $63K in Quick Retreat From All-Time High
• Bitcoin 87% Price Flash Crash on Binance.US Attributed to Trader Algorithm Bug
• FTX Raises $420,690,000
• Houston Firefighters Pension Fund Makes Bitcoin, Ether Purchase
• FATF to Publish Crypto AML Guidance Next Week
• Andreessen Horowitz Invests in New Meta4 NFT Fund
• Swedish Financial Watchdog Investigating Two Local Crypto Firms

Other markets

Most digital assets in the CoinDesk 20 ended the day lower.

Notable winners as of 21:00 UTC (4:00 p.m. ET):

• The Graph (GRT): +7.74%
• Chainlink (LINK): +3.35%
• Ethereum Classic (ETC): 1.37%

Notable losers:

• Dogecoin (DOGE): -5.60%
• Polkadot (DOT): -5.60%
• Filecoin (FIL): -4.84%

CORRECTION (Oct. 21, 21:07 UTC): Corrects bitcoin’s all-time high price.