As Bitcoin recovered some of its losses on Tuesday, experts believe that the market is close to bottoming out and will see significant gains soon.
On Monday, major mainstream crypto assets fell sharply, with Ethereum down by over 20 per cent and Bitcoin by 11 per cent. The derivatives market witnessed a liquidation of $827 million including long orders of nearly $720 million. According to Alernative.me data, the current market panic index has fallen to 26, and the market is in a “panic” mode. There are multiple reasons for the flash crash and bearish behaviour in the market. Bitcoin hit a near six-month low of $49,445 touched on Monday.
“Judging from historical trends in the crypto market, before the market forms a true bullish drive, it needs to experience a sharp decline to reduce the long positions of the contract in order to reduce the selling pressure for future rises. This is a key factor in the rapid rise of the market, observers can continue to pay attention to changes in the macro market including the panic index indicators. At present, the core key to affecting the market trend is the sentiment index. If VXX starts to fall, it means that the panic sentiment has eased,” Gracy Chen, CEO at Bitget, said.
Continued fears about the defunct crypto exchange Mt.Gox repaying its creditors and Jump Crypto appearing to liquidate hundreds of millions of dollars worth of crypto positions, particularly ethereum, have added to the sell-off in crypto markets.
“Technical indicators however are now showing as oversold, as well as the Crypto fear and Greed index flashing ‘Fear’, which is usually a sign of a bottoming of the price, so it is possible we could see a rebound from here over the coming days, as to how high the price will rebound we have to wait and see,” said Simon Peters, Crypto analyst at eToro.
Shivam Thakral, CEO of BuyUcoin, India’s second-longest-running digital asset exchange, said: “The global crypto market has witnessed a significant shift, with a market cap of $1.89 trillion reflecting a 12.29 per cent decrease over the last day. However, Bitcoin has dropped below $50,000. Its dominance has slightly increased to 56.56 per cent, indicating resilience amid the market volatility. The recent decline in Bitcoin’s price is due to a hike in interest rates by central banks around the world, geo-political tension in the Middle East, and concerns related to the US economy, which have affected investor sentiment. However, Bitcoin’s strong market presence reflects that there is potential for recovery and growth as market conditions stabilise.”
The broad market selloff triggered by recession fears has led to capital being reallocated away from higher-risk assets, with digital currencies still largely perceived as such, according to Binance. This movement has been compounded by recent dynamics in the U.S. presidential race, which some market participants view as potentially less favorable to cryptocurrencies as an asset class. Finally, in the crypto market, the summer months have historically been slower than other months of the year, with consistently smaller returns. It is possible that these seasonal dynamics are also coming into play here.
“Despite these challenges, we do not view this as indicative of a long-term negative trend for the crypto market. The Federal Reserve is expected to cut interest rates in September, which should improve the outlook for the US economy. Moreover, with the presidential election still some time away, there remains significant potential for market fluctuations. As the election approaches, we are likely to witness market impacts in both directions as candidates clarify their stances on cryptocurrencies,” Binance CEO Richard Teng said.