September is a seasonally bearish period for equities, and the same is true for Bitcoin. Historically, this month has seen a contraction primarily because it is viewed as a time when summer gains are taken, and many companies set new objectives for the year's final quarter. And this first week of the month has lived up to the odds: the S&P 500 is closing the week with a 3.9% loss, marking its worst week since March 2023.
Bitcoin has lost 10% this week since its opening, breaking through key levels after a tumultuous August that saw some recovery following the red aftermath of Black Monday.
Even though interest rate cuts are finally here, investors and markets are now questioning whether this might be a poisoned gift. It's no longer just about taming inflation; it's also about ensuring that employment, industrial production, and services remain strong, so that we can see the Fed guiding the economy to a soft landing. The problem is that many see U.S. fiscal and economic authorities preparing their parachutes.
The speedometer indicators reflect the market sentiment: risk has significantly increased since last week, and momentum has deteriorated. However, on-chain fundamentals remain in the neutral zone, which suggests that dips could be seen as opportunities for investors. Let's take a closer look.
Speedometers indicating the current state of BTC. The full dot represents the current reading and the white dot represents one week ago.
Major drawdown risk returns.
The drop to zero in the Risk Index was short-lived during Bitcoin's ascent to $65k, ultimately resulting in a false breakout. Currently, we are at risk levels similar to those seen in mid-August, following Black Monday.
There are endogenous factors within the crypto ecosystem that could potentially contribute to a spike in risk. Factors like what appears to be one of the final chapters in the FTX saga or the selling pressure that could be exerted by the distributions from Mt. Gox and the holdings of the U.S. government are elements that, to some extent, have already been priced in.
The focus is now on macro factors, where the Fed faces a challenging outlook: the rate cuts come at a time when employment is weakening and the economy is deteriorating. We will dive deeper into these in the macro outlook below.
The risk signal shows us that a bottom is not clearly defined and the tail risk of a crash to even lower levels is significant. Nevertheless, when we do see the Bitcoin Risk Index recede it may well be a good entry point, even if we are not back in the low-risk zone: The next spike up will probably be aggressive.
This is precisely what we mentioned earlier: a sign of Bitcoin's health is that its fundamentals have not been negatively impacted, despite the increased risk and loss of momentum in price. In this regard, the fact that they remain largely unaffected signals that the bearish outlook is short-term and driven by external factors.
Additionally, we cannot overlook that the network hash rate has reached a new all-time high, further strengthening these fundamentals. This unequivocally indicates that miners are not focused on short-term price movements but continue to support and expand Bitcoin's infrastructure, making it more secure and robust, with a long-term perspective in mind.
YTD time series of Bitcoin network growth and liquidity, the two subcomponents of our Bitcoin Fundamental Index.
Afraid much?
In previous analyses, we observed that greed would surge rapidly, while fear took longer to permeate investor sentiment. This is entirely logical: the idea that, in the post-halving stage, Bitcoin could at any moment produce a "God Candle" to new...
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