In short
- The crypto market sell-off has been linked to the spillover of risk aversion from traditional markets, particularly profit-taking in overvalued AI stocks, Decrypt was told.
- On-chain data shows that 8 out of 10 metrics are bearish, while derivatives and options data indicate traders are betting on even more negative outcomes.
- A recovery will require a close above $105,000, depending on a dovish Fed and positive economic data, an analyst said.
The outlook for Bitcoin continues to deteriorate amid continued selling pressure as uncertainty grips broader financial markets.
The top crypto’s decline has caused a death cross and the first weekly candlestick closes below the 50-week moving average – two technical but critical signals that point to a possible start to Bitcoin’s bear market.
A deathcross occurs when the 50-day moving average falls below the 200-day moving average. The popular bearish indicator indicates that short-term momentum is falling faster than the long-term trend, potentially signaling the start of a bear market.
Bitcoin has fallen nearly 14% in the past week and is currently trading around $91,600, according to data from CoinGecko. Last week’s selling pressure caused the stock to close below the 50-week moving average, just above $100,000.
It is the first weekly close below this level since October 2023, when the bull market began. A weekly close above the 50-week moving average previously signaled the start of the bull run. A close below that level now raises serious questions about the potential for near-term recovery.
The price action over the past three months has led analysts to conclude the onset of a bear market for crypto, according to an earlier publication Declutter report.
Adding credibility to this view is that of CryptoQuant Bull Score Index. Eight of the ten most important on-chain metrics are highlighted in red, indicating a bearish trend amid the ongoing crypto market hemorrhage.
“The main reason for the decline of the crypto market is the growing fear among investors in traditional markets,” said Farzam Ehsani, CEO of VALR. Declutter.
During risk-averse conditions, crypto markets tend to move in tandem with technology stocks, Ehsani explains, which have come under pressure as investors start to take profits from AI-related stocks.
More pain ahead?
Derivatives markets show that open interest has exceeded October 10 levels, indicating that speculation continues to increase despite a downside market outlook.
A continued decline in the cumulative volume delta, coupled with an increase in open interest, indicates that investors are speculating on lower prices by opening short positions.
This downward trend is supported by the recent trend drop in the 25-delta, the price has turned negative, indicating that put purchases to protect against downside risk continue to play a prominent role among options traders.
However, a closer look at the perpetual data shows that the rise in funding rates and the spike in the bid-ask delta at a depth of 5% to 10% indicate that investors are starting to buy the dips.
If the price fails to stop the bleeding, these buyers could be forced to sell, creating long-term pressure that worsens the downtrend.
Despite the gloomy outlook, Ehsani expects a near-term recovery or the beginning of a recovery if Bitcoin consolidates above $100,000.
“A firm commitment from the Federal Reserve to cut rates in December and metrics showing robust US economic growth amid successful efforts to combat inflation” are key catalysts that could improve sentiment and fuel the recovery, the analyst said.
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 sell-side momentum to dominate the trend, with sellers limiting any attempt at recovery.
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