Recent optimism regarding a potential Federal Reserve interest rate decrease has resulted in an upswing in cryptocurrency valuations. However, experts are cautioning that this upbeat sentiment could shift unexpectedly.

Data from Santiment reveals that discussions surrounding terms like “Fed,” “rate,” and “cut” have reached their highest levels in 11 months. This spike often signals an overly bullish crowd, which historically increases the likelihood of a sharp market correction.

Investor Sentiment: A Double-Edged Sword

Santiment expert Brian pointed out a classic market behavior: “buy the rumor, sell the news.” While Ethereum has surged ahead and Bitcoin shows resilience, the heightened interest surrounding Fed discussions could lead to excessive optimism.

While improving funding rates and increasing discussions can drive prices upwards, they can also render markets more unstable. Historical trends indicate that when a single narrative prevails, price peaks can form more rapidly than anticipated.

On-chain indicators signal potential caution among investors as well. Reports indicate that Bitcoin reserves held on exchanges have risen by approximately 70,000 coins since early June, reversing the previous trend of assets moving into cold storage.

According to Santiment, this change could present a greater supply ready to flood the market if sentiment shifts. Concurrently, metrics such as daily active addresses and transaction volumes have decreased from previous levels, suggesting that core utility metrics are not as strong as they may appear.

Technical Analysis of Bitcoin: Caution Advised

On the technical front, Bitcoin is hovering around $117,000, attempting to surge past the $120,000 threshold. A Fibonacci analysis shows the 0.382 retracement level at $114,355, which is currently under scrutiny.

Should selling pressure escalate, potential downside targets like $108,200 and $103,800 could come into play. The daily chart illustrates a breach of an ascending trendline and a failed attempt to maintain positions above the supply area near $120,000, highlighting the importance of prudent risk management for larger positions.

Ethereum: Navigating Profit-Taking Risks Despite Positive Trends

Funding rates and MVRV analyses contribute to a cautious outlook. Current reports indicate Bitcoin’s long-term MVRV is +18.5%, suggesting moderate risk for new long-term investments. With positive funding rates pointing towards bullish sentiment, any sudden change could impact market dynamics rapidly.

Ethereum appears to be faring better, trading around $4,755 with a significant support level at approximately $4,550. Santiment highlighted that the short-term MVRV stands at about +15%, marking a potential danger zone for retracements, while the long-term MVRV at +58% suggests a high probability of profit-taking.

Image sourced from Getty Images, chart courtesy of TradingView