Bitcoin’s decline from over $115,000 to around $113,000 has reignited enthusiasm among retail traders seeking to purchase the dip. However, historical data indicates that such optimism may not yield the expected positive results.

Misplaced FOMO?

According to Santiment, there is a growing chorus among retail traders advocating for buying the dip following a recent market pullback on Tuesday. Their findings suggest that heightened enthusiasm for dip-buying typically leads to additional downward pressure, contrary to a swift recovery. In fact, previous cycles show that the most lucrative entry points emerged during periods of low retail sentiment and when few anticipated a rebound. Santiment cautions that traders often misinterpret market bottoms, and optimism can rapidly shift to fear when prices continue to fall.

Real accumulation phases generally occur only after shifting from fear of missing out (FOMO) to fear, uncertainty, and doubt (FUD); this transition ushers in stronger market rallies.

Adding to this cautious narrative, crypto analyst Ali Martinez noted that the TD Sequential indicator, renowned for forecasting Bitcoin’s recent price fluctuations, has signaled a sell once again. He highlighted the effectiveness of this indicator in predicting market movements over the past few months, which accurately identified a 7% correction in July, a 13% drop in August, a 10% rebound in early September, a 15% uptick later that month, and a 19% correction in early October.

With the indicator now suggesting another sell signal, this could imply that Bitcoin might be heading for another short-term downturn if historical patterns hold.

Bitcoin’s Fragile Floor

Doctor Profit also issued a skeptical outlook for Bitcoin. On his social media account, he expressed that while there’s widespread expectation for a 25-basis-point rate cut from the Federal Open Market Committee (FOMC), the actual ramifications will arise from comments made by Federal Reserve Chair Jerome Powell. He asserted that many are misinterpreting the ongoing policy shift, emphasizing that ceasing Quantitative Tightening (QT) does not necessarily indicate the onset of Quantitative Easing (QE).

Liquidity remains constrained, with banks encountering funding shortages and central banks primarily stabilizing a delicate financial ecosystem instead of introducing new capital. Doctor Profit predicts that the Federal Reserve will not reinstate QE unless a significant crisis compels them to resume printing money. He indicated that liquidity stress in the repo market is escalating, surpassing the situations observed in 2019, with overnight funding collapsing and cash availability dwindling.

In light of these circumstances, he maintains a bearish stance on both Bitcoin and stocks, anticipating that investor exuberance will wane and liquidity conditions will worsen until the next systemic issue prompts Federal Reserve intervention.