(Kitco News)—Asset traders are licking their wounds in early trading on Wednesday following a red Tuesday that saw more than a trillion dollars wiped from the stock market. Bitcoin (BTC) retested support at $56,000 overnight but is now undergoing a price recovery aided by a drop in the dollar index (DXY)
“Pressure on the crypto market returned on Tuesday and intensified on Wednesday morning, with capitalization falling 4.8% to $1.98 trillion,” said Alex Kuptsikevich, senior market analyst at FxPro. “This is below the psychological support line that attracted buyers for most of August and is the lowest level since August 8th. The nature of the decline early in the day suggests another wave of stop orders during a period of reduced liquidity, so it is too early to say that the $2 trillion support has been breached.”
“On Tuesday, Bitcoin sellers took the initiative first on the approach to $60K and then at $59K, supported by the growing sell-off in traditional markets,” he added. “Bitcoin fell to $55.5K at the peak of the decline before stabilizing at $56.4K. Current levels acted as support during the May and July declines, but the trend of lower local lows sets up a reversal at $54K at the earliest.”
“Like other altcoins, Ethereum's (ETH) local high was on August 24th, two days before Bitcoin reversed and interrupted a corrective rebound,” Kuptsikevich noted. “Technically, a retest of the August 5th lows around $2100 is now more likely.”
Data provided by TradingView shows that Bitcoin underwent a sharp downtrend late on Tuesday that dropped the top crypto to a low of $55,563 in the early morning on Wednesday. Bulls have since pushed it back above $56,300, but bears have kept the pressure applied, leading some analysts to warn of a potential pullback to $45,000.
BTC/USD Chart by TradingView
“The price of BTC is going to crash in the immediate short term!” said TradingView analyst Xanrox. “Why? We need to look at the price action, and there is really nothing bullish at this moment. We can clearly see a descending channel, and Bitcoin is most likely going to retest its bottom. The downtrend is confirmed, and when we look at the fractals, we may definitely experience a very steep crash as in August.”
“From the Elliott Wave perspective, it really cannot be more bearish than the current situation,” he added. “This is a textbook ABC corrective pattern, and this pattern is confirmed once the price breaks below wave B because it invalidates potential bullish (1,2,1,2) formation.”
As for what is causing the weakness, Ed Hindi, Chief Investment Officer at Tyr Capital, pointed to ETF outflows and miner selling but said it's unlikely that Bitcoin will breach below $48,000.
“Both BTC and ETH are down as Grayscale spot ETF holders and legacy bankruptcy estate customers are dumping their holdings,” Hindi said in a note shared with Kitco Crypto. “BTC miners have also been selling their inventory as their profit margin is under intense pressure.”
“A breach of $55k could trigger more than $500m of long liquidations,” he warned. “We don't believe a breach of $48k is likely, though, as BTC remains very well supported by long-term holders.”
And briefly touching on “The September curse,” Hindi noted that, “Although September is historically a negative month for BTC, the combination of a FED rate cut and a relatively robust US economy could surprise the bears. We believe the chances of BTC settling above $60k to be higher than the chances of it settling below it.”
On Monday, analysts at Bitfinex warned about a potential “sell the news” scenario following the long-awaited rate cut that “could present both risks and opportunities for traders.”
“The ‘sell the news’ effect mentioned by the Bitfinex analysts is indeed common in financial markets,” said Ryan Lee, Chief Analyst at Bitget, in a note to Kitco Crypto. “Investors often take profits after positive news is realized, which can lead to a short-term market decline. Therefore, their view, grounded in historical data, has a certain level of validity. In the short term, market sentiment and investor behavior may indeed put pressure on the prices of Bitcoin and other assets.”
“The Bitfinex analysts point out that, unlike the rate cuts during the 2007-2008 financial crisis, the current rate cuts are more preemptive,” he added. “This difference in context could indeed lead to a different market reaction. Today's rate cuts are aimed at preventing potential economic slowdowns rather than responding to a crisis that has already occurred. As a result, the market may react more mildly to these ‘preventive’ rate cuts, which is why the analysts anticipate less volatility.”
“Additionally, this suggests that although a rate cut may trigger a short-term pullback, in the long run, the market is likely to recover and benefit from more accommodative monetary policy,” Lee concluded. “As such, investors should consider this distinction when formulating investment strategies, rather than focusing solely on short-term price fluctuations.”
