Traders worldwide are watching the latest bout of downside volatility with keen interest, in an effort to assess the digital asset markets’ future macro direction.
Following sideways Thursday trading, in early Friday price action, bitcoin slid 4.7% from Thursday’s daily close to just shy of $41,000, before bouncing to an important pivot point at $42,400, representing an underside test of the low point from the Dec. 4 breakdown.
The reaction at this level will provide a significant technical clue to the short-term direction of crypto’s dominant asset. In the past hour, BTC is rejecting this level, which is coincident with the 1-hour 21-period exponential moving average.
Ethereum’s ether asset plunged about 8% in the same period and lost a key level relative to bitcoin that had previously served as a support level. That opens up a technical path lower for ether to test its weekly 50 moving average against the US dollar, which would fall near the daily lows reached in late September.
Despite a substantial 36% decline in the total crypto market cap over the past seven weeks, the relatively gradual move has not led to a sharp rise in liquidations of leveraged positions, even as the global leverage ratio has continued to rise and remains near an all-time high.
That fact, combined with increasing volatility, leaves open the possibility of an episode of cascading liquidations, akin to what the market witnessed in May, should the downward momentum accelerate.
In the bull’s favor, the structure of a weekly uptrend remains intact so long as bitcoin does not close a weekly candle below about $31,700 — the July low.
Sentiment is also extremely negative, with the crypto “fear and greed index” hitting the 15 mark on Thursday. As a contrarian indicator, periods of extreme fear have often marked macro bottoms in bitcoin’s history.
If bitcoin can reclaim the $43,000 level and avoid closing out the week below $41,000, the chances of a relief rally increase. But for now, bitcoin is no threat to resume a daily uptrend until it can clear resistance above $51,000.
US markets are set to open lower, with S&P 500 and Nasdaq futures and both in negative territory as of 9:00 am ET.
