Bitcoin and other cryptocurrencies underwent a significant plunge below key levels on Tuesday, intensifying the recent downtrend. This downward trend follows the United States’ regulatory approval of spot Bitcoin exchange-traded funds (ETFs), which has sparked increased activity in the crypto markets.
Over the past 24 hours, the price of Bitcoin has fallen by 4%, bringing it below the crucial $40,000 mark to a current value of under $38,900. This decline represents a nearly 20% drop from its recent peak surpassing $48,000. It’s important to note that this peak was reached amidst the trading frenzy surrounding the approval of spot Bitcoin ETFs.
Yuya Hasegawa, an analyst at the crypto exchange Bitbank, cautions that the bearish market sentiment and technical outlook could further pressure Bitcoin in the coming days if it fails to quickly recover and close above $40,000. In such a scenario, Hasegawa suggests that the price may continue to drop, potentially reaching the next critical level at $38,000.
Although the Securities and Exchange Commission’s approval of these ETFs was a highly anticipated catalyst, it has triggered a “sell the news” dynamic. As a result, even though these funds represent a bullish case for digital assets in the long term, some investors have chosen to reposition their capital. Notably, traders have been rotating out of the Grayscale Bitcoin Trust, and there seems to be a trend of certain investors exiting the crypto market altogether, at least temporarily.
Risk Aversion in Digital Asset Markets
It is worth noting that the sentiment in digital asset markets differs greatly from that of the stock market. While the Dow Jones Industrial Average and S&P 500 continue hitting record highs, risk aversion seems to prevail in the world of digital assets. Tokens, in particular, often correlate with other risk-sensitive assets, especially equities, which means they can move in tandem with stocks.
Analysts have been closely monitoring the dynamics in the crypto market with caution. They are contemplating the possibility of a deeper correction or even a return to a period of stagnation similar to the quiet trading that dominated for months before the hype around ETFs caused volatility.
According to Alex Kuptsikevich, an analyst at broker FxPro, “With the Bitcoin price falling below $39,000, there is a risk of going beyond a typical correction after the September rally. Bitcoin may find little support in the $37,500 area. However, below that lies an area of prolonged consolidation, increasing the likelihood of another long tug-of-war.”
In addition to Bitcoin, Ether, the second-largest token, experienced a 6% decline, dropping to $2,220. Smaller cryptocurrencies, or altcoins, also displayed weakness, with Cardano declining by 7% and Polygon by 6%. Memecoins such as Dogecoin and Shiba Inu mirrored this trend by each shedding 6%.