In brief
- The crypto market sell-off has been linked to risk-aversion spill over from traditional markets, particularly profit-taking in overvalued AI stocks, Decrypt was told.
- On-chain data shows 8 out of 10 metrics are bearish, while derivatives and options data point to traders betting on further downside.
- A recovery requires a close above $105,000, hinging on a dovish Fed and positive economic data, one analyst said.
Bitcoin’s outlook continues to deteriorate amid unwavering selling pressure, as uncertainty grips the broader financial markets.
The top crypto’s descent has triggered a death cross and the first weekly candlestick close below the 50-week moving average–two technical but critical signals that hint at a potential start to Bitcoin’s bear market.
A death cross occurs when the 50-day moving average crosses below the 200-day moving average. The popular bearish indicator suggests that short-term momentum is falling faster than the long-term trend, potentially signaling the start of a bear market.
Bitcoin is down nearly 14% over the past week and is currently trading around $91,600, according to CoinGecko data. Last week’s selling pressure pushed it to close below the 50-week moving average, just above $100,000.
It marks the first weekly close below this level since October 2023, when the bull market began. A weekly close above the 50-week moving average had previously signaled the start of the bull run. A close below that level now raises serious questions about the potential for a near-term recovery.
The price action over the past three months has led analysts to conclude the start of a bear market for crypto, according to a previous Decrypt report.
Adding credence to this outlook is CryptoQuant’s Bull Score index. Eight out of 10 key on-chain metrics have lit up red, signaling a bearish trend amid the crypto market’s ongoing hemorrhage.
“The main reason for the crypto market decline is growing investor fears in traditional markets,” Farzam Ehsani, CEO of VALR, told Decrypt.
During risk-averse conditions, crypto markets tend to move in unison with tech stocks, Ehsani explained, which have come under pressure as investors begin to take profits from AI-related equities.
More pain ahead?
The derivatives markets show open interest has crossed above October 10 levels, indicating that speculation continues to build up despite a downtrending market outlook.
A sustained downtick in cumulative volume delta, coupled with an uptick in open interest, suggests that investors are speculating on lower prices by opening short positions.
Supporting this downtrend is the recent drop in 25-delta skew into negative territory, indicating that put buying for downside protection remains a prominent play among options traders.
However, a closer look at the perpetual data shows that the uptick in the funding rate and the spike in bid-ask delta at 5% to 10% depth indicate that investors are starting to buy the dips.
If the price fails to plug the bleeding, these buyers could be forced to sell, creating a long squeeze that exacerbates the downtrend.
Despite the bleak outlook, Ehsani expects a short-term rebound or the start of a recovery if Bitcoin consolidates above $100,000.
“A firm commitment from the Federal Reserve to cut rates in December and statistical data showing robust U.S. economic growth amid successful efforts to combat inflation” are key catalysts that could improve sentiment and aid recovery, according to the analyst.
He tempered his outlook, suggesting that a “breakout above $105,000 is necessary to return to a confident growth pattern.”
Until this happens, Ehsani expects the sell-side momentum to dominate the trend with sellers capping any attempts at recovery.
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