Bitcoin Slumps in Wake of U.S. Bond Yield Surge and Overbought Market Conditions
Summary:
Bitcoin's value dropped by over 4% to around $27,390 on October 3, following a previous attempt to reach a two-month high. This decrease, coupled with high trading volumes, reflects bearish market sentiment. Factors contributing to the downturn include soaring U.S. bond yields, an overbought RSI, and long liquidations outweighing shorts. Technical analysis suggests a possible bearish bias and a key level of $26,800, below which there could be a further drop. However, a bounce back could see Bitcoin challenge the $28,400 mark.
Bitcoin's value shrank quickly, a day after trying for a two-month peak of $28,590. As of October 3, Bitcoin had dipped to around $27,390, marking a downturn of over 4% from the day prior. High trading volumes coupled with this decrease on the daily chart suggest a pessimistic outlook among traders for the cryptocurrency. The causes behind this recent slump of Bitcoin are manifold.
A key element playing into Bitcoin's subdued performance is the surge of U.S. bond yields. The yield on a principal U.S. 10-year Treasury note achieved a high point in sixteen years of 4.75% on October 3, influenced by the Federal Reserve's plan to keep interest rates from falling in the next two years. Higher yields tend to heighten the potential costs of retaining Treasuries, favoring the U.S. dollar against dominant foreign currencies. Consequently, the U.S. dollar index (DXY) reached its peak since November 2022 on October 3. Bitcoin has typically been negatively impacted by a robust dollar throughout this year, as visualized in the diagram below.
Bitcoin's retreat was inevitable from a technical standpoint given its overbought relative strength index (RSI). On October 2, Bitcoin's four-hour (4H) RSI outpaced 70 to hit its peak in over a month. Overbought RSI usually sets the stage for price correction or consolidation, indicating a shortage of buyers at high prices, as demonstrated below.
Rekt Capital, a financial analyst, suggests that the sell-off of Bitcoin coincided with a pre-halving pattern from 2019, mirrored below. The pattern presumes Bitcoin's value will dwindle for another 28 weeks until halving, afterward bouncing back to hit a fresh high.
The speed of Bitcoin price downfall was fueled by the overwhelming of long liquidations over shorts. To safeguard against potential further drops, closing a long position demands selling the underlying asset. Hence, long liquidations force a further dip in asset price when coupled with selling pressure in the spot markets. The preceding 24 hours witnessed approximately $23 million in long liquidations compared to over $5 million in short liquidations, as per CoinGlass data.
A drop in funding rates paired with these long liquidations. However, funding remains above zero which means those holding long positions continue to fund short positions, implying that the market retains an overall bullish sentiment.
There is also a forewarning of possible bearish bias in Bitcoin's technical analysis, featuring an emerging classic bearish reversal pattern in the daily chart. This pattern, named as a "rising wedge", forms as the price fluctuates within boundaries defined by two ascending, converging trendlines. It is expected that the pattern settles once the price slips lower than its bottom trendline and falls corresponding to its peak height.
Bearing this in mind, bears will aim to reduce Bitcoin price toward the lower trendline of the wedge near $26,800, a space aligning with the cryptocurrency’s 0.236 Fib line, and the 50-day and 200-day exponential moving averages (EMAs).
If the lower trendline is broken, a tumble to around $24,000 could be predicted over the subsequent few months, totaling a dip of about 12% below current values. Alternatively, if a bounce occurs during or following the testing of the lower trendline, Bitcoin might challenge the upper trendline near $28,400, alongside the 0.5 Fib line.
Published At
10/3/2023 3:54:27 PM
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