In brief
- Bitcoin dropped to lows of beneath $95,000 Friday, amid waning demand and increased sell pressure.
- Derivatives data shows sellers dominating the market as the Coinbase premium turns negative.
- Experts suggest that crypto may be in a bear market, but macro and regulatory clarity, coupled with on-chain strength, will determine if this outlook can change.
Massive exchange-traded fund outflows, declining institutional and retail spot appetite, and increased selling pressure from whale activity have investors questioning whether crypto is in a bear market.
Bitcoin dropped below $95,000 Friday morning, down 8% on the day and over 24% since its record peak of $126,200 just five weeks ago, according to CoinGecko data. In the past 24 hours, more than $1.24 billion in crypto longs have been liquidated amid the market slump, according to CoinGlass data.
The selloff is not limited to crypto markets and can be seen across equities, with the S&P 500 index dropping nearly 1% in the pre-market session, while gold is down 2.76% today.
The bellwether crypto is down over 10% since its Monday highs, putting it on a track for a third consecutive weekly down close candlestick.
This bearish sentiment is reflected in falling investor confidence, as seen on prediction market Myriad, where users’ chances of Bitcoin hitting $115,000 before $85,000 have dropped from 71% just four days ago to 46%. (Disclaimer: Myriad is owned by Decrypt’s parent company Dastan).
Defining the downturn
“Judging by market movements over the past three months, we must conclude that we are currently in a bear market.” Adam Chu, chief researcher of options analytics platform GreeksLive, told Decrypt.
Despite the presence of a considerable divergence in investor sentiment this week, “put options have now gained the upper hand following Bitcoin’s breach below the $100,000 mark today,” Chu added.
“CryptoQuant’s Bull Score is lighting up bear market territory: 8 out of 10 key on-chain metrics are bearish,” Maarten Regterschot, CryptoQuant verified analyst, told Decrypt. “From falling stablecoin liquidity to fading network activity and capital exiting derivatives, this setup mirrors the late 2021 and early 2022 cycle.”
In perpetual markets, open interest, which tracks the total open positions, has been steadily rising since the October 10 liquidation event that wiped out $19 billion in positions, suggesting an uptick in speculation activity. Meanwhile, the cumulative volume delta, which is the difference in total buys and sells, is declining steadily, suggesting that sellers are in control.
When combined, these two indicators suggest that short sellers are dominating the perpetual markets, according to Velo data.
A drop in the Coinbase premium, which tracks discrepancies and capital dynamics between the U.S. and global crypto markets, into negative territory signals that demand from the U.S. is waning, adding to the bearish sentiment.
A final factor is a drop in institutional demand due to macro and geopolitical uncertainties, as evidenced by outflows from exchange-traded funds and the slowdown in digital asset treasury-driven accumulation.
Though the geopolitical and macroeconomic uncertainty was resolved, the overhang persists, with experts suggesting that traders are focusing “on the damage already done,” including weeks of missing economic data, experts previously told Decrypt.
Where next for Bitcoin?
All in all, the crypto market outlook remains grim, making this one of the worst fourth-quarter performances.
Bitcoin’s sustained drop from its record high of $126,000 to below $96,000 has pushed the formation of a “death cross,” a popular bearish signal that occurs when the 50-day simple moving average crosses below the 200-day simple moving average, indicating that short-term momentum is declining faster than long-term momentum. The signal marks the start of a bear market, or so the belief goes.
“It’s less about calling tops and bottoms and more about recognizing that crypto is transitioning from an overheated environment into a more measured one,” Shivam Thakral, CEO of Indian crypto exchange BuyUCoin, told Decrypt.
“We’re in a corrective phase within a broader cycle,” Thakral added, noting that a few key catalysts, such as economic data, regulatory developments, and Bitcoin’s own on-chain strength, will determine whether this correction turns into a full-blown bear market.
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