A Mirror of the 2022 Bottom: Bitcoin Expected to Enter a Long and Tedious Consolidation Phase

▲ Bitcoin (BTC)

Bitcoin (BTC), which has recently experienced a steep decline, has either already hit its bottom or is very close to it, with analysts suggesting that a long and tedious period of sideways movement may follow, drawing significant market attention. Traditional investment strategies that treat extreme fear as a buying opportunity are also flashing warning signs.

According to investment media outlet FXStreet on February 18 (local time), Vetle Lunde, Head of Research at digital asset research firm K33, assessed that the current market situation closely resembles October and November 2022, which marked the bottom of the previous bear market. At that time, Bitcoin recorded average returns ranging between -3.5% and 3%, showing relatively flat performance. Based on these observations, Lunde projected that Bitcoin has either already reached the bottom of this downturn or is very close to it, and will likely face a disappointing and slow-moving sideways market ahead.

K33 forecasts that Bitcoin will remain stuck in the $60,000 to $75,000 range for the time being, continuing a dull trading pattern. However, the firm evaluated that this consolidation phase could present a highly attractive entry point from a long-term perspective.

What stands out in the latest report is its critique of the limitations of the Crypto Fear & Greed Index. As Bitcoin’s continued decline last week pushed the index down to a record low of 5, many investors interpreted this as a potential buy signal. However, K33 countered that the index is closer to a lagging momentum indicator reflecting past performance rather than a predictor of future prices. Its correlation with past performance stands at 0.71, while its correlation with future returns is only 0.14.

An analysis of nearly 3,000 trading days completely overturns conventional wisdom. Investors who bought during periods of extreme greed saw an average 90-day return of 95%, whereas those who bought during extreme fear recorded returns of just 2.4%. Lunde explained that this counterintuitive result occurs because high greed readings typically appear during acceleration phases of bull markets rather than at their peaks. However, he added that buying during extreme fear periods, when the index falls below 10, historically limited the average maximum future drawdown to -29.5%, helping to reduce downside risk.

As of the time of writing, Bitcoin is trading at around $66,400, down 1.7% from 24 hours earlier. Amid a decline in overall market open interest, Bitcoin has intermittently recorded negative funding rates and continues to consolidate without finding clear upward momentum.

Disclaimer: This article is for investment reference purposes only and the publisher is not responsible for any investment losses incurred based on it. The content should be interpreted solely for informational purposes.