The Bitcoin fear and greed index has returned to neutral with its market sentiment improving from a state of extreme fear. In relation to that, the price of BTC has finally hit the higher $43K mark, closing in on the $46K resistance.
Bitcoin All Time High Price at $69K
Bitcoin has been on a roller coaster ride ever since it hit its previous all time high of $69K. After hitting the mark, the cryptocurrency dipped multiple times with bull traps in place.
Although the initial market sentiment was that Bitcoin would reach $100K by the end of 2021, the market ended up staying true to to its market cycle with whales cashing out and taking profits. As tweeted out by BitcoinFear, the market sentiment for BTC is now at 48, which brings it to neutral.
Assessing Whether the Market is Forming a Bull Trap
Despite the price of Bitcoin recovering, it is important to assess whether or not this is another bull trap. According to an article by The Balance, a bull trap happens "when a security falling in price suddenly reverses direction."
Bull traps often see the price of assets, including cryptocurrencies like BTC, rise after a steep bearish trajectory before suddenly dipping far below its previous low point. Because of this, the market is tricked into thinking that the price will go up in order for other investors to cash out of their long term holdings.
The Start of a Market Cycle
Per Investopedia, there are four major stages during a market cycle. It starts with accumulation, followed by mark-up, then distribution, and lastly, mark down. When looking at the market cycle in terms of emotions, this can be seen as neutral, greed, extreme greed, fear, extreme fear, then neutral once again.
Accumulation takes place when smart investors start accumulating a certain asset at a good price point in order to get a solid holding at a fair price. Once they have accumulated and the price starts to rise, other investors and traders, as well as new money enter the picture.
Once new money joins the market cycle, this usually puts it at a state of greed. This state sees the price of the asset rises significantly.
In addition, other investors will try to join in and purchase more of the asset due to its success. This will lead to its mark-up phase of extreme greed.
The End of a Market Cycle
After the buying trend slows down, this is where the distribution phase begins. In this phase, sellers begin to dominate the market. In addition, when smart investors start to sell their long term holdings, the market starts to go down in trajectory.
When the mark-down happens, it enters into a state of fear and even extreme fear with paper hand investors pulling out of their positions. The market begins a state of depression once this has taken place with the price sitting at the bottom.
The cycle then repeats itself.
Related Article: Top Crypto Fear and Greed Index Goes from Extreme Fear to Just Fear
This article is owned by Tech Times
Written by Urian B.
