Bitcoin’s red hot rally came to stop on Wednesday when the price of the digital asset dropped just under $13,000. Today, the top digital currency is rebounding, currently at $13,450.
The sell-off, however, wasn’t confined to the crypto market alone and was seen in other markets as well. As a matter of fact, stock markets have been having a rough week as they continue to extend the losses.
Fueled by concerns over tougher coronavirus-related lockdowns and the upcoming US presidential election, stock markets had its worst decline in months. Since Monday, S&P 500 has fallen 5.6% and Dow Jones Industrial Average slid 6.4% with the tech-heavy Nasdaq only suffering 4.6% losses. Edward Moya, a senior market analyst at Oanda Corp said,
“This broad, risk-aversion-trading session is triggering widespread panic selling, which is seeing every risky asset, like gold and Bitcoin, really start to plummet.”
Profit Taking to be Expected
Bitcoin was inches away from hitting the 2019 high of $13,900 when the losses came but interestingly BTC is right where it was the day before the fall.
According to Bloomberg, Bitcoin’s 14-day strength index reading jumped above 70, signifying it to be overbought.
“I think that $14,000 is a very key threshold,” said Moya. “Once that level is taken out, there is going to be a lot more upside here.”
But the crypto community is not concerned about the decline, it is natural after the more than 21% rally. Also, with $14k being the big resistance before hitting an all-time high, people are seeing it as an opportunity to just buy the dips before we moon. As Mike McGlone, a strategist at Bloomberg Intelligence has been saying,
“Something unexpected has to reverse increasing adoption of Bitcoin as digital store-of-value such as gold, or the price has few options but to rise.”
In Capitulation, Still More Pain Ahead
Besides Bitcoin and the stock market, gold also went down to the $1,870 level while the US Dollar took this opportunity to strengthen above 93.5.
However, according to one trader, USD remains “macro bearish” which “in the big scheme of things this is good for BTC however we will have dips along the way.”
Altcoins also went down hard, following the leading digital currency and according to analyst DonAlt is in “capitulation.” He said,
“If this move down on all altcoins keeps going for a couple weeks and starts getting ridiculous I think we might be able to finally find some sort of medium-term bottom.”
As for DeFi, they have been experiencing correction since last month and continued their descent. Even the popular ones, YFI and Aave that looked to capitulate are making new lows. Now SNX has also joined the falling tokens where UNI continues to bleed due to its supply issuance. Quant trader Qiao Wang said,
“I constantly update my views and unfortunately it looks like there’s going to be more pain in DeFi. Originally I thought we won’t see a 80-90% crash which is typical of alts because of the level of sophistication of DeFi investors but that thesis is being invalidated.”