• Bitcoin, ETH, SOL and other cryptocurrencies modestly reversed their losses from earlier in the day.
• The Crypto Fear & Greed Index sentiment indicator sank to deep fear levels similar to the lows in early July and August.
• Investor sentiment is so negative that a "tradable local bottom" could be close, Lekker Capital's Thompson said.

Continuing downward price action in crypto may be about to reverse in a big way, at least in the short term based on the readings of one popular sentiment indicator.

Bitcoin (BTC) during Wednesday U.S. trade recovered to around $58,000 from an earlier low of $55,600, now about flat over the past 24 hours, as is ether (ETH) . The broader crypto market benchmark CoinDesk 20 Index was up 1% as native tokens of Solana (SOL) , Near (NEAR) and the Internet Computer Protocol (ICP) outperformed the two largest cryptos.

The price action happened as the widely-followed Crypto Fear & Greed Index returned to deep "fear" territory, sinking to as low as 26 out of 100 in the past few days. The metric represents market enthusiasm towards bitcoin and other large cryptocurrencies, with zero showing extreme fear and 100 corresponding to extreme greed.

"With recession fears reaching a fever pitch and crypto sentiment washed out, I believe we are at or very close to a tradable local bottom," Quinn Thompson, founder of digital asset hedge fund Lekker Capital, wrote in a Wednesday update.

Thompson pointed out that the U.S.-listed bitcoin ETFs on Tuesday saw their biggest daily outflow since May 1, which interestingly corresponded to a local bottom in bitcoin's price at $56,500. BTC then rebounded 27% in three weeks to $72,000.

And that's not the only time low levels Crypto Fear & Greed Index offered tactical long opportunities over the past few months.

The metric fell to 25 in early July as BTC plummeted to $53,000 amid sell pressure from the German and U.S. governments and Mt. Gox distributions. Prices then climbed 32% to nearly $70,000 by the end of the month. The early August crash to $49,000 pushed the index into the extreme fear zone of 17, subsequent to which bitcoin rebounded 32% to $65,000 in three weeks.

Read more: Crypto Crash Pushes Fear & Greed Index to Lowest Since Bitcoin Traded at $17K in Early 2023

Despite a potential bounce, the longer term outlook for digital assets are still murky as growing concerns about the U.S. labor market and a potential recession concur with the Federal Reserve's forthcoming interest rate cuts. Bitfinex analysts said bitcoin could fall to around $40,000-$50,000 in a bearish, recessionary scenario following rate cuts.