Bitcoin plummets. Crypto traders remain optimistic, but that could only drive prices down.

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Bitcoin prices are falling from key levels after breaking above $30,000 for the first time since last June. Rutmer Visser/Dreamstime

Bitcoin and other cryptocurrencies were lower on Friday as regulatory pressures weighed on sentiment. Crypto traders remain optimistic, but big bets on a rebound can only hurt prices in the short term.

Bitcoin price has fallen 3% in the past 24 hours to below $27,000, falling further from the psychologically important $30,000 level it broke above last week for the first time. in 10 months. The $30,000 area is considered critical as this is where prices were trading last June before a massive crypto sell-off gathered pace in a brutal bear market. Bitcoin, however, struggled to consolidate above this level despite spikes near $31,000.

It’s worth bracing for a more typical pullback from the 50-day average near $26,700, said Alex Kuptsikevich, analyst at broker FxPro. Such a drop promises to fray the nerves of crypto enthusiasts. A break below this level could quickly take the price to $25,600, the all-important 200-week moving average, the capture of which allowed the bull market to be declared resurgent in March.

While Bitcoin fell this week on some weakness in the stock market, it underperformed against the Dow Jones Industrial Average and the S&P 500 amid concerns about the critical US market regulatory backdrop. Broker Coinbase Global (ticker: COIN), for its part, has signaled that it is increasingly looking overseas in a lack of clarity that could hurt the business.

Macroeconomic forces, primarily inflation and the outlook for interest rates, along with regulatory pressures, continue to drive crypto prices. After rallying around 75% so far this year, Bitcoin has pared its gains and looks vulnerable to a correction, although macro or regulatory catalysts may help halt the slide.

The market is struggling to find a reason to buy and support the price as selling pressure and the long selloff have driven the price lower this week, said Bitbank analyst Yuya Hasegawa.

This second factor, called liquidation, is an important market dynamic that is currently driving prices down. It has to do with the Bitcoin futures market, which is the most liquid place for Bitcoin price discovery in all of crypto.

Most bitcoin futures positions are taken with leverage or money borrowed from a broker, and can be forcibly closed if the market swings against traders in a process called liquidation. This usually triggers automatic sell orders, which can lead to momentum building in a downward spiral effect as more traders are liquidated.

More than $400 million in bullish futures positions have been liquidated since Wednesday, according to crypto data provider Coinglass, coinciding with the fall in the price of Bitcoin.

Despite the drop, the bulls do not seem to have given up yet because [the] Bitcoin’s futures market funding rate is still positive, which could limit Bitcoin’s higher potential and worsen its near-term pullback, Hasegawa said.

Funding rate refers to a method that ensures that the price of Bitcoin spot the token itself, as traded on exchanges like Coinbase, matches the price of the futures contract. When the futures price is above the Bitcoin price, indicating that most bets are aimed at increasing prices, the funding rate is positive. Traders who take these long positions to cause prices to rise must then pay money to traders with short positions, inducing some equilibrium in the futures market.

With the funding rate currently in positive territory, this indicates that bullish sentiment prevails despite the declines. This could signal that many traders may still be vulnerable to liquidation, which could continue the downward price spiral.

Beyond Bitcoin, Ether, the second largest crypto, fell 2% to nearly $1,900. Smaller cryptos or altcoins were weaker, with Cardano down 3% and Polygon plunging 4%. Memecoins showed much of the same, with Dogecoin down 9% and Shiba Inu losing 3%.

Write to Jack Denton at [email protected]

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