Bitcoin (BTC) and other cryptocurrencies are stabilizing after a sell-off on Wednesday. Some analysts expect crypto volatility to remain elevated this month, especially as investors reduced their exposure to other assets deemed to be risky such as equities.
Wednesday’s sell-off resulted in $800 million in liquidations, which accelerated price moves. Liquidations occur when an exchange forcefully closes a trader’s leveraged position as a safety mechanism due to a partial or total loss of the trader’s initial margin. That happens primarily in futures trading.0 seconds of 6 minutes, 8 secondsVolume 90%
Some analysts are watching the recent rise in leverage among bitcoin futures traders, which typically signals more risk in the market.
From a technical perspective, bitcoin could see a countertrend bounce, although upside appears to be limited.
- Bitcoin (BTC): $43,163, -2.41%
- Ether (ETH): $3,418, -5.71%
- S&P 500: $4,696, -0.10%
- Gold: $1,788, -1.20%
- 10-year Treasury yield closed at 1.72%
Bearish sentiment indicator
The bitcoin Fear & Greed Index, which measures sentiment among market participants, is at its lowest level since July. The low reading indicates market fear and is often seen as a contrarian indicator among crypto traders.
“The Fear and Greed Index hasn’t signaled greed in more than one and a half months – an unusually long period of negative market sentiment,” Arcane Research wrote in a report.
Still, the index can remain in “fear” mode for as long as a month as prices typically move sideways before a decisive move up or down.
Bitcoin drawdown deepens
Bitcoin is roughly 35% below its all-time high of almost $69,000, which was set in November. The drawdown, or percentage decline from peak to trough, is the largest since July. Previous drawdowns have reached levels of nearly 80% and took several months to recover.
For now, drawdowns have been less severe over the past year relative to prior extremes.