Bitcoin Extreme Fear Signals Hint at Market Bottom Formation

Bitcoin experienced a significant correction in the third week of October, falling from around $115,000 to below $105,000 amid a widespread crypto market downturn. This price decline triggered a cascade of on-chain developments that market analyst Burak Kesmeci identifies as key indicators of current market conditions and potential price movements. The most prominent signal came from the Fear and Greed Index, which plunged into the ‘extreme fear’ zone, reflecting a surge in investor anxiety following Bitcoin’s latest price correction.

According to Kesmeci’s analysis shared in an X post on October 18, this extreme fear reading is typically observed near market lows rather than peaks, suggesting it may not be the ideal time for selling. Simultaneously, the Net Unrealized Profit/Loss (NUPL) metric dropped below 50%, moving market sentiment from optimism to worry as the average profitability among Bitcoin holders eroded significantly. These developments occurred against a backdrop of negative funding rates in derivatives markets, indicating that short positions now dominate futures trading.

Despite the broader market weakness, institutional confidence in Bitcoin appears to remain intact. Shares of MicroStrategy (MSTR), the largest corporate Bitcoin treasury, declined below $300, reflecting the broader weakness in Bitcoin-linked assets. However, the firm simultaneously reinforced its long-standing conviction by adding 220 BTC to its holdings during the downturn. This acquisition brings MicroStrategy’s total Bitcoin holdings to 640,251 BTC, underscoring continued institutional confidence despite short-term price pressure.

The divergence between MicroStrategy’s share price performance and its continued Bitcoin accumulation strategy highlights the complex dynamics at play in the current market environment. While equity markets reflect immediate concerns about Bitcoin’s price correction, the company’s actions demonstrate a longer-term perspective that views price dips as accumulation opportunities rather than reasons for panic selling.

Beyond sentiment indicators, on-chain valuation metrics are flashing signals that suggest Bitcoin has entered deeply oversold territory. The Advanced NVT Signal fell below -0.5 standard deviations, a level historically associated with oversold market conditions and early bottom formation phases. This technical indicator measures the relationship between network value and transaction volume, providing insight into whether Bitcoin is overvalued or undervalued relative to its fundamental usage.

Complementing this signal, the Active Address Sentiment Indicator (AASI) shows that Bitcoin’s price has dropped disproportionately relative to network activity. This divergence between price action and fundamental network usage often precedes recovery periods, as market fundamentals tend to stabilize ahead of sentiment. When considered together, these technical indicators suggest that Bitcoin is operating within an extreme fear and oversold environment that historically presents accumulation opportunities for long-term investors.

At the time of writing, Bitcoin trades at $106,970 after a 0.29% decline in the last 24 hours. The monthly chart reflects an 8.32% loss as the premier cryptocurrency struggles to establish its expected ‘Uptober’ bullish form. However, the convergence of extreme fear signals, oversold technical indicators, and continued institutional accumulation suggests that a local market bottom may be forming.

Coincodex analysts are predicting an imminent market rebound, with a projected price target of $124,172 in five days. This optimistic outlook aligns with Kesmeci’s assessment that the current market condition presents strong accumulation opportunities despite the prevailing negative sentiment. The combination of extreme fear readings, institutional buying, and oversold technical conditions creates a compelling case for potential near-term recovery, though market participants should remain cautious given the volatility inherent in cryptocurrency markets.