Market Wrap: Cryptos Decline Amid Bearish Sentiment

Bitcoin (BTC) traded lower on Tuesday as sentiment among crypto traders remained bearish.

The bitcoin Fear & Greed Index has been stuck in “fear” zone over the past month and reached its second-lowest recorded fear level in the index’s history last week. Still, the index has recovered slightly over the past few days, which suggests extreme bearish sentiment could start to wane, especially if BTC recovers above $30,000.

For now, most alternative cryptos (altcoins) underperformed bitcoin on Tuesday, which suggests a lower appetite for risk among traders. For example, ether (ETH) declined by 4% over the past 24 hours, compared with a 2% decline in BTC. Avalanche’s AVAX dipped by 9% and Fantom’s FTM token fell by 14% on Tuesday.

Typically, alts decline more than BTC in down markets because of their higher risk profile.

Just launched! Please sign up for our daily Market Wrap newsletter explaining what happens in crypto markets – and why.

From a technical perspective, price bounces could be limited until long-term momentum improves. That could point to a full year of lower returns for stocks and cryptos relative to the strong uptrend in 2020.

Volatile markets could offer opportunities for short-term traders who do not commit to price trends and can take long or short positions. Likewise, investors who are nimble enough to reduce risk can deploy unused cash for the next up cycle in asset prices.

But timing price shifts can be difficult over the short term. For example, on average, bitcoin tends to yield positive returns during periods of extreme bearish sentiment, according to Arcane Research. “Bitcoin has also seen continued sell-offs following extreme fear. Thus, you should not blindly expect that buying into fear and poor momentum is profitable.”

Latest prices

Diminishing returns

The chart below shows a long-term decline in bitcoin’s 29,4291,968.320.40610249.380.188088