The current state of the cryptocurrency market is experiencing a strong bearish trend, with Bitcoin (BTC) struggling to regain its previously important support levels.
Recent data from CoinGecko shows that Bitcoin has retraced nearly 6% in the past week, leading to double-digit losses in other major cryptocurrencies like Ethereum (ETH), XRP, Binance Coin (BNB), and Solana (SOL).
Galaxy Digital Revises Bitcoin Price Target
This downturn is a stark contrast to the bullish sentiment seen earlier in October when Bitcoin surged to a new all-time high above $126,000 before a wave of margin buying. However, the excitement was short-lived as a significant amount of leveraged positions were liquidated shortly after, leading to a lack of investor confidence.
Galaxy Digital, led by Michael Novogratz, has recently revised its year-end Bitcoin price target down to $120,000 from $185,000 due to the impact of the leveraged wipeout.
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CryptoQuant’s analysis highlights that Bitcoin dropping below its 365-day moving average near $102,000 could signal a deeper decline, potentially leading to a more significant correction in its price.
The recent market decline was influenced by a stronger dollar and uncertainties surrounding Federal Reserve (Fed) policies, resulting in reduced risk appetites across different asset classes.
There has been a notable decrease in demand in the spot market, along with forced deleveraging, causing over $1 billion in long liquidations at recent lows, briefly breaching intraday support levels before bounce-backs from dip buyers.
Importance of ETF Flows Stability
The options market has added to the volatility, with dealers maintaining a net short gamma position around the $100,000 strike, leading to increased hedging activity at this crucial level.
The $100,000 mark now serves as a psychological barrier, and any stabilization in ETF flows could shift market sentiment, provided there are no new macroeconomic shocks.
On the macroeconomic front, analysts assert that the current environment is supportive, despite the government shutdown in Washington. However, policy clarity remains uncertain.
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The Federal Reserve’s recent 25 basis point cut in October, accompanied by some dissenting views, adopted a cautious tone against expectations for another cut in December.
Markets are currently pricing in a 60-65% probability of another move, but as the Fed’s blackout period persists, policymakers may lean towards a pause, maintaining a strong dollar and tight credit conditions.
To achieve sustainable upward momentum, CryptoQuant’s analysis suggests that a reversal in exchange-traded fund outflows and restored confidence in risk assets will be crucial.
Featured image from DALL-E, chart from TradingView.com