Crypto, Stocks Fall as Traders Pivot: How Low Can Bitcoin Go?
Global financial markets are undergoing a significant selloff, with risk assets like Bitcoin, stocks, and gold experiencing declines. Bitcoin fell below $100,000, marking a 21% drop since its October peak, while broader crypto market capitalization hit a four-month low of $3.44 trillion. Analysts cite a strengthening U.S. dollar, tightening liquidity, and rising risk aversion as key factors for this downturn. Over $2 billion in digital asset liquidations were triggered, amid concerns about the U.S. government shutdown and market uncertainty. Despite the downturn, experts highlight strong network fundamentals like high hash rates and inflows of stablecoins into exchanges, indicating potential market resilience.
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Global Selloff in Financial Markets
Global financial markets are witnessing a broad-based selloff, as investor appetite for risk assets, including crypto and stocks, diminishes. Bitcoin plunged below the historic $100,000 level on Tuesday, while the S&P 500 index and gold dropped 3% and 10%, respectively, from their peaks.
Crypto Market Decline
On Wednesday, Bitcoin fell to an intraday low of $99,110, marking a 21% decline from its October peak, according to CoinGecko data. The broader crypto market capitalization sank to $3.44 trillion, the lowest level in four months. Additionally, the selloff triggered over $2 billion in liquidations across digital assets, marking the second consecutive day of heavy leverage unwinding.
Investor Concerns Amid Market Risks
The critical question for investors is how much further prices could decline. Ryan Yoon, Senior Research Analyst at Tiger Research, stated that Bitcoin is likely to hold at $98,000 and reaffirmed his long-term price target of $200,000. On the other hand, Tim Sun, Senior Researcher at HashKey Group, pointed out a fundamental shift towards risk aversion, with bonds posting meaningful gains, while risk assets like Bitcoin, gold, and equities saw broad-based pullbacks. Sun believes that $85,000 remains a strong support level for Bitcoin.
Strengthening USD and Liquidity Concerns
Jiehan Chen, Lead Analyst at Schroders, highlighted the strengthening U.S. dollar as a significant driver behind the market-wide decline. Other experts echoed this view, noting that the USD's strength continues to pressure dollar-denominated risk assets. Sun also flagged worrying signals in short-term funding markets, such as widening spreads, increased usage of the Fed's Standing Repo Facility, and a U.S. Treasury account exceeding $1 trillion, which is draining liquidity from the financial system.
Impact of U.S. Government Shutdown
The tightening liquidity environment is exacerbated by fears surrounding the ongoing U.S. government shutdown, which is expected to extend through December. On prediction platform Myriad, users assigned a 98.7% probability that the current government shutdown will be the largest in U.S. history. Derek Lim, Head of Research at Caladan, noted that the liquidity crunch is amplifying the selloff's impact on markets.
On-Chain Data and Sentiment Analysis
Despite negative market sentiment, on-chain data provides a more nuanced outlook. Verified CryptoQuant analyst XWIN Research noted that Bitcoin's dip below $100,000 is primarily sentiment-driven, with the Fear & Greed Index falling to 21. Importantly, network fundamentals remain robust, with hash rates at all-time highs and $10.7 billion in stablecoins flowing into Binance, possibly indicating future investment potential. Similarly, Santiment, an analytics platform, observed that many investors are still buying dips with confidence.