As of August 19, the cryptocurrency market continues to experience downward price trends, with the total market capitalization struggling to stay above the $1 trillion mark. The value of Bitcoin has also slipped below the $26,000 level as the week draws to a close.
This week’s significant market decline was triggered on August 17, catalyzed in part by Elon Musk’s SpaceX reportedly divesting its Bitcoin holdings, alongside other crucial factors. Given Bitcoin’s substantial dominance of nearly 50% within the overall cryptocurrency market, it reacted negatively to the SpaceX news. The ensuing “bloodbath” witnessed a surge in liquidations across crypto derivatives markets, exacerbating the sell-off.
Liquidation Surge and Macro Concerns
Approximately 176,300 traders were forced to liquidate contracts worth $1.04 billion by August 18, with a significant majority being long exits. This cascade of liquidations was driven by a long squeeze, forcing traders to offload their holdings at a loss to mitigate potentially larger losses.
The broader decline in the cryptocurrency market mirrors the downturn observed in the global stock market. The MSCI World Index, encompassing substantial stocks from developed countries, registered a notable drop on August 17, coinciding with mounting apprehensions regarding China’s economic trajectory and rising interest rates. The possibility of China devaluing its currency, the yuan, to stimulate its economy raises concerns about potential negative repercussions for the crypto market, particularly in the short term. Historical precedent indicates that such a move could trigger substantial losses, echoing events from 2015.
Technical Indicators and Potential Outcome
Technical indicators compound the market’s challenges. The ongoing decline is shaping a potential bearish reversal pattern known as a head-and-shoulders (H&S) formation on the weekly chart. This pattern typically resolves with a breakdown below the support line or neckline. By August 18, the crypto market had tested this H&S neckline, potentially signaling further losses in 2023.
Should this pattern persist, the projected target for late 2023 or early 2024 could be approximately $751 billion, marking a decline of over 25% from the current valuation. Conversely, bullish endeavors aim to drive recovery toward the 50-week exponential moving average (50-week EMA) around $1.113 trillion in 2023. The crucial support level of the 200-week EMA at approximately $1.08 trillion holds significance for bullish prospects moving forward.