Bitcoin (BTC USD) market sentiment pulled off a mid-week recovery into greed territory, shrugging off recent bearish concerns.
But how far can BTC go this time, and will the bearish concerns limit its potential upside? Bitcoin tanked by about 6% in August, characterized by a bearish outlook.
There were a few reasons for this. The cryptocurrency mirrored its double top during the 2021 cycle, and a pullback was within the post-halving cycle.
A Bitcoin cycle top has historically occurred about 16 months after each halving. However, things are different this time, particularly due to institutional involvement and growing integration with traditional finance.
One major difference between the current market setup and the previous top was the financial situation in the U.S. The previous bear market kicked off with tightening monetary policy.
Bitcoin’s latest pullback occurred on the backdrop of rate cuts expected to start this month.
This economic difference, combined with a favorable regulatory environment and institutional demand, suggests that the bull market may extend.
Bitcoin (BTC USD) Sentiment Jumps Back into Greed Territory
The previously mentioned concerns hammered down heavily on Bitcoin sentiment, which dropped as low as 39 points earlier at the end of August.
This meant sentiment hovered in fear territory, underscoring the uncertainty around the potential end of the bull market.
Market sentiment shifted back into greed in just 4 days, which meant that September was off to a bullish start. But will this sentiment mark more upside and possibly allow Bitcoin (BTC USD) to secure new historic highs?
Despite the recent sentiment recovery, the overall sentiment was that Bitcoin’s top for the current bull market could still occur within the next few months.
This suggests that there might be room for new historic tops. On the other hand, the market also expects that altcoin season is just beginning.
This could set the pace for liquidity rotation from Bitcoin to altcoins. In other words, Bitcoin may move slower compared to top altcoins.
A similar scenario played out with ETH in August. Furthermore, Bitcoin dominance still hovered below 60%, suggesting that altcoin season might continue to proliferate.
However, there was one major factor that could trigger the bear market.
AI Bubble Might be the Biggest Signal for Bear Market
Cryptocurrencies maintained a relatively high degree of correlation with the stock market. Both are categorized as risk-on assets, which explains why investors tend to react the same to either category.
AI companies have been aiding the stock market’s performance, but analysts have been growing concerned.
This is because an AI bubble has been brewing, meaning the bubble could burst soon and this outcome may trigger a major selloff.
Such an outcome may put Bitcoin (BTC USD) and altcoins in the liquidity crosshairs, potentially triggering the next bear market. However, it is also important to consider
Although an AI bubble popping may induce a liquidity exit across risk-on assets, it is also keeping an eye on correlation.
An alternative scenario where assets like Bitcoin act as safe haven assets may also be possible.
If cryptocurrencies decouple from the S&P500, then it might extend its upside. However, the liquidity cycle is the one tell-tale sign that has been determining how things play out.
Bitcoin (BTC USD) next cycle top may also be tied to the liquidity situation. A switch to rate hikes rather than rate cuts might be the biggest bear market signal, just as it was in the 2021 bull market top.
These factors may also raise questions about crypto’s future performance. Institutional involvement this time may disrupt the previous 4-year cycle.
A bear market may also end up being shorter than usual. Especially if institutions maintain the recent aggressive buying trend during the downturn.