As we plunge into August, the crypto sphere is already buzzing with tension, and not without reason. Bitcoin has kicked off this year’s so-called “ghost month”—a time notoriously linked with volatility—by plunging dramatically by 20%. Although it has managed to bounce back by 13%, soaring back to around $49,050, the specter of caution looms over investors, particularly in the Asian markets, as they brace themselves for what’s next.
What Exactly is a Ghost Month?
This year, the ghost month spans from August 4 to September 2. Rooted in the Chinese lunar calendar, it represents the seventh month of the year, a time steeped in cultural beliefs and folklore. Traditionally viewed as a period fraught with misfortune, the ghost month has cast a long shadow over Bitcoin’s performance since 2017, leading to a string of disheartening drawdowns.
While it’s crucial to remember that this cultural phenomenon does not hold objective sway over financial markets, it undeniably plays a role in shaping market psychology and influencing investors’ sentiment. Historical data reveals a troubling correlation: each ghost month has been marked by significant price corrections in Bitcoin.
To illustrate, Bitcoin has experienced varying degrees of turmoil during these months. Despite a generally positive return on investment over the years, each ghost month has brought with it a swift, severe flash crash. The year 2021 stands out as an anomaly, with the market rallying; however, it quickly followed with a staggering 23% drop, plunging into a prolonged bear market.
In recent weeks, Bitcoin’s open interest (OI) has plummeted, crashing from a high of $21 billion on July 29 to just under $15 billion by August 6. This dramatic drop signals a cautious approach from traders, many of whom appear to be scrambling to avoid liquidation. As the ghost month began, August 5 witnessed an unprecedented sell-off, with more than $5.2 billion in BTC being moved at a loss in a mere hour—a stark indication of nervousness within the market.
Unpacking the Bitcoin MVRV-Z Score
Bitcoin’s recent dip below the pivotal $50,000 mark has been influenced by a slew of economic headwinds, including looming recession fears and speculation surrounding the U.S. Federal Reserve’s next moves. However, a closer look at Bitcoin’s market value to realized value (MVRV-Z) score offers a glimmer of hope. This score, a key metric indicating the asset’s valuation, reveals that we may still be waiting for that euphoric phase typical of a bull market.
The MVRV-Z is derived from the ratio of market value to realized value, presenting a unique perspective on Bitcoin’s supply and demand dynamics. A ratio above 3.7 indicates overvaluation, while a score below 1 suggests undervaluation. Historically, Bitcoin has soared past the 3.7 threshold during bull market phases—in 2013, 2017, and 2021. However, in 2024, the current MVRV-Z score hovers around 1.40, signaling that Bitcoin is still undervalued at its current price point.
As of now, Bitcoin has rebounded above $57,000, marking a 4% increase over the last 24 hours. The relative strength index (RSI) is nestled in the oversold region on daily charts, hinting that bulls may have the upper hand in the short term. Yet, a word of caution: Bitcoin is notorious for its wild price fluctuations during the ghost month. Thus, it’s entirely possible that we could see it “fill” existing gaps or experience further downturns in the coming days or weeks.
In a realm where uncertainty reigns supreme, the upcoming weeks promise to be nothing short of a rollercoaster ride for Bitcoin enthusiasts and investors alike. The question remains: Will this ghost month be haunted by losses, or could it usher in a new era of bullish sentiment? Only time will tell.