Bitcoin is down after a big rally. It could get ugly.

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Bitcoin prices appear vulnerable to losses after momentum from a recent rally faltered. The time of dreams

Bitcoin and other cryptocurrencies were down on Thursday, falling in line with the stock market as investors fret over the prospect of a recession. The big rally in digital assets over the past week, which had little fundamental support, will now be tested.

The price of Bitcoin has fallen 2% in the past 24 hours to below $20,800. The biggest crypto had closed at $21,500 at the height of recent trading, the zenith of a stunning rally that took Bitcoin more than 20% higher in a matter of days to levels not seen since the platform’s collapse. influential FTX trading in November.

Bitcoin prices are weakening as growth fears raise fears on Wall Street that a soft landing may not happen. The outlook for the crypto has improved significantly over the past few weeks, but the current rebound finally appears to be facing some resistance, said Edward Moya, an analyst at brokerage Oanda.

Bitcoin had hit a two-year low following the FTX bankruptcy, falling to near $15,500, and hovered between $16,500 and $17,000 for weeks before beginning its upward march the last week in the longest winning streak in nearly a decade.

But the momentum began to reverse on Thursday after the Dow Jones Industrial Average and S&P 500 fell on Wednesday, the worst day for the stock market in 2023 so far, and were set to suffer more losses in the coming day. Investors fear the Federal Reserve won’t be able to stage a soft landing to tame inflation while avoiding recession with concerns leaking from stocks to crypto given the correlation between the two price-sensitive assets. risk.

Bitcoin is still holding its ground above $20,000. Indices could drop further to find a local low in the coming days, with Bitcoin likely to be supported at the psychological $20,000 level, said Bitbank analyst Yuya Hasegawa. In other words, Bitcoin’s decline is likely to be shallow. /// THE UPDATE BEGINS

But there are still risks if crypto prices deteriorate much further, as the rally that carried Bitcoin higher in the first place was largely built on sand.

One of the factors that propelled prices higher was the short-term squeeze momentum: so many traders had bet against Bitcoin, or shorted, that the onset of a major rally was accelerated, investors being forced to redeem their positions to avoid further losses.

More importantly, the rally was exacerbated by a lack of liquidity in the crypto markets. Liquidity has been depressed since the collapse of FTX, which drove market maker Alameda Research and trapped some of other liquidity providers’ assets on the platform into bankruptcy.

This actually means that there are fewer buyers and sellers in the market, so when prices rise, there are fewer sellers to meet demand, which helps prices continue their uptrend. While a lack of liquidity has been hailed amid the Bitcoin rally, a drop in price can see a reversal in the trend and it could get ugly.

Nonetheless, many in the digital asset space remain convinced that the worst of the bear market that took Bitcoin down from a November 2021 high near $69,000 is over. The rebound from the two-year lows may suggest the formation of a market bottom and a capitulation with all traders who were going to sell having already sold.

Even as Bitcoin and crypto fall more broadly from here, we’ve entered what is increasingly seen as a decent buying opportunity for this asset class, said Anthony Georgiade, co-founder of the Pastel Network blockchain. The sell-offs have been so dramatic over the past year that the market doesn’t seem to think there are that many forced sellers left.

Beyond Bitcoin, Ether is the second largest cryptoshed by 3% at $1,530. Smaller cryptos or altcoins were also weaker, with Cardano and Polygon down 4% and 5%, respectively. Memecoins reversed an isolated mini-rally, with Dogecoin falling 6% and Shiba Inu 7% in the red.

Write to Jack Denton at [email protected]

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