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A Confluence of Factors Sent the Crypto Market Plummeting

A few factors led to a massive selldown of crypto assets as public sentiment sinks to a new low.

Bitcoin Loses Ground

The crypto market fell sharply on Thursday after documents of The US Federal Reserve’s (Fed) December meeting were released, causing widespread fear across all equities markets. The NASDAQ and the S&P 500 Index tumbled amidst fears of tightening monetary policy from the Fed. 

Source: The recent dip brought Bitcoin the dormance flow to March’s lows

This news was further aggravated by a 36-hour internet outage in Kazakhstan, the second largest country for Bitcoin mining. The confluence of these two major news led to panic selling.

However, the selldown only liquidated a small portion of leveraged trades. In a tweet by on-chain analyst, Will Clemente, most of the margin contracts that have been piling up since December remain unaffected. 

Source: The dip did little to affect margined contracts as leveraged positions remains high 

Bitcoin’s Midterm Prospect

This dip has successfully shaken out most of the retailers. The market sentiment is now at ‘extreme fear’ and this level was only seen way back in the middle of last year. If history is an indicator, each time the market enters into ‘extreme fear’ the market rebounds. It is also an indicator of the market finally bottoming out. 

Souce: Extreme greed is often an indication of an overbought market and extreme fear is an indication of an oversold market

Social media is perhaps one of the best barometers of market sentiment. Many retailers were shaken out from the market and believe that the bull cycle has ended. 

In early November when Bitcoin reached an all-time high, the market sentiment was at ‘extreme greed’ and many retailers believed that Bitcoin will break the $100k price barrier. 

Bitcoin may trend sideways in the immediate future until the market prices-in the anticipated move by the Fed. Bitcoin will have an upward bias once the market reaches its equilibrium. The upward swing can be sparked by a few catalysts. One of them is better regulatory clarity from different jurisdictions. 

Fear of inflation will also drive institutions to seek a safe haven for their reserves. Bitcoin’s narrative as the ultimate store of value fits perfectly into this proposition.  

Timing the Market

It is almost impossible to time the market. Many predictions based on previous cycles have failed. Bitcoin is evolving and this is the result of the participation of new investors. Dollar-Cost averaging is probably still the best investment method to wither this storm. 

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