Crypto market at risk of implosion?

In recent days, apocalyptic forecasts have been circulating regarding the potential risk of a total implosion of the crypto market. 

It’s not the first time this has happened, and to be honest, in the past, these considerations have often been harbingers of positive omens. 

In fact, it is not unusual for a risk of implosion in the crypto markets to be suggested precisely when fear is at its peak, but this should actually be interpreted as a more positive than negative sign. 

The Fear of Crypto Market Implosion

Using the CMC Fear and Greed Index as a reference, it is currently in the extreme fear zone. 

The current level is the same as the first decade of April, that is, after the price of Bitcoin had dropped from over $100,000 to less than $80,000 in less than three months. 

At that time, just in the days following the peak of fear, recorded at the same levels as now, the price of Bitcoin began to rise again, so much so that a little over a month later it was already reaching new all-time highs. 

It is by no means certain that the same thing will happen now, but in the past, scenarios like this have occurred several times, whereas the scenario of total implosion has never yet occurred. 

Fear as a Contrarian Indicator

The point is that this index measures the sentiment of the crypto market. 

The measured sentiment is indeed due to the emotional behavior of investors/speculators, but large institutional investors are not at all accustomed to behaving in this way. 

It is primarily the small retail speculators who are guided by emotions, while whales often use reason much more and emotions much less. 

Therefore, that index is not a measure of the emotional behavior of whales, precisely because whales tend not to exhibit emotional behavior. Instead, it measures the emotional behavior typical of retail investors. 

Well, it is well-known and widely acknowledged that the vast majority of retail investors often make mistakes in financial markets. In fact, the vast majority of retail accounts on exchanges tend to be at a loss, whereas the same cannot generally be said for whales. 

This suggests that it may be possible to use the fear and greed index as a contrarian indicator of the actual health of the crypto markets. 

In other words, when there is an evident excess of fear, like now or as at the beginning of April, it could paradoxically be interpreted as a good sign, provided that the whales are buying. 

Additionally, in recent days, several reports have emerged indicating that various whales are buying, even though this wasn’t the case until a few days ago. 

Is the Crypto Market Really at Risk of Implosion?

As for the actual risk of a crypto market implosion, at the current state of affairs, there is in fact no clear indication pointing in that direction. 

In particular, analyzing the trend of the total number of BTC held on crypto exchanges, it is noted that while they were slightly rising between November 13 and 17, as of yesterday they have fallen again, reaching new all-time lows for this cycle. 

This indicator can be considered a proxy for selling pressure, because generally those who deposit BTC on a crypto exchange do so to sell them. Moreover, those who withdraw them usually do not do so to sell them outside of exchanges. 

Therefore, if there was indeed an increase in selling pressure in recent days, this trend ended yesterday. In fact, the level of BTC selling pressure on crypto exchanges has returned to a level lower than that recorded on any other day of the current cycle. 

Altcoins

Bitcoin is generally capable of setting the tone for the crypto markets. Therefore, a potential rise could largely alleviate fears even among many altcoins. 

That said, there could be exceptions, both positive and negative.

For instance, in the past thirty days, Zcash has risen by 150%, while Bitcoin has fallen by 17%. 

Cardano has dropped by 30%, while Monero has risen by 15%. 

Therefore, even in the event of a Bitcoin bull movement, it is by no means certain that all altcoins will follow suit. Many might do so, but some could move in the opposite direction. 

In other words, while the overall crypto market does not appear to be genuinely at risk of implosion, some altcoins might be at risk, even if they are few and difficult to identify. 

For example, in the last thirty days, there have been some memecoins that have imploded, but this is normal in crypto markets, especially concerning memecoins.