The Bitcoin bull-bear market cycle indicator, a metric that tracks phases of investor sentiment in the Bitcoin market, recently signaled a bear phase following the macroeconomic downturn resulting from rising Japanese interest rates and a strengthening yen.
According to Julio Moreno, head of research at CryptoQuant, the indicator has not flashed a bear signal since January 2023, a few short months after the collapse of FTX.
Moreno also pointed to the indicator’s history of accurately predicting market downturns during the COVID-19 panic of March 2020, the Chinese government’s mining ban in May 2021 and the start of the crypto bear market in November 2021.
However, CryptoQuant founder Ki Young Ju added to the analysis, stating that the signal from the bull-bear market cycle indicator should be monitored for at least two weeks to see if the indicator changes. According to the founder, if there is no change after two weeks, it could signal a sustained bear market phase.
Ju also expressed confidence that Bitcoin could reach a new all-time high within a year if the decentralized asset stays above the $45,000 price level.
The unwinding carry trade causing severe turmoil in markets
An interest rate hike from the Bank of Japan, ending a 17-year policy of relatively cheap interest rates, was widely seen as the main catalyst for the current market downturn. Following the rate increase from 0.1% to 0.25%, investors who took out cheap yen-denominated loans to buy dollar-denominated assets rushed to liquidate their assets to close their yen loans in anticipation of future interest rate increases.
Over $1 billion was liquidated from the crypto markets during the initial sell-off resulting from the unwinding of the yen carry trade, including approximately $367 million in Bitcoin and $350 million in Ether, though markets have managed to regain some lost ground since Aug. 5.
Traders and analysts continue to debate whether the recent downturn is sporadic or will be sustained, with popular long-term crypto trader Jelle cautioning investors that the third quarter is traditionally a tough period for the Bitcoin market, particularly in August and September.
