The crypto market saw major cryptocurrencies drop as much as 20% over the weekend during today’s trading session. According to a group of experts, the short-term bias is likely to be down at least until the end of the week.
At the time of writing, the overall crypto market broke through $1 trillion and could retest $920 billion support. Macro conditions appear to be dragging down risky assets like cryptocurrencies and stocks,
The total crypto market cap is moving sideways on the daily chart. Source: trading view
In a market update shared with NewsBTC, Matt Weller, Global Head of Research for FOREX.com, and City Index, the current price action across the sector was prompted by a drop in risk appetite among market participants.
There is still much uncertainty about macroeconomic factors that could contribute to the latter. The US Dollar (DXY Index) is pushed higher as the market seeks protection from high inflation and uncertainty, which is negatively impacting other major currencies, stocks and crypto assets.
If the US Dollar continues its rise, the total market cap for the emerging sector could see a 58% drop if a bear flag formed on the weekly chart is completed. As analyst Caleb Franzen said, this could take the sector to its 2020 levels of around $400 billion and erase a large chunk of the gains made during the past bull run.
If you watched the live stream this morning, you saw me share this potential bear flag for $TOTAL crypto market cap.
That would mean a -58% decline to $414 billion.
Aligns with the key structure.
Difficult to spot but worth watching as a potential scenario… pic.twitter.com/nleiOsoJ8b
— Caleb Franzen (@CalebFranzen) August 22, 2022
For Bitcoin, this could mean a return to the low $10,000s. According to Weller, Bitcoin saw “permanent damage” as its price was pushed down from a yearly high of around $48,000 to a yearly low of $18,700.
As the price bounced off these lows, BTC formed a rising channel but was rejected by the 50-day Exponential Moving Average (EMA) last week. As the chart below shows, Bitcoin’s price has fallen below this channel, “leaving a bearish short-term bias for a possible retest of summer lows near $18,700.”
Source: Matt Weller, Global Head of Research for FOREX.com and City Index.
What a crypto crash could mean for the price of large digital assets
For the second cryptocurrency after the market, Ethereum, a key benchmark for the sector, Weller believes it has seen an “impressive rally.” The cryptocurrency will complete its migration to a Proof-of-Stake (PoS) consensus with The Merge, which has supported the bullish momentum.
However, in the short-term, Ethereum is also trading below its EMA, which could push its price back to its “end-July swing low near $1,375,” the expert said. As seen below, if bulls can push the price back to last week’s levels, ETH could retest this support with risks of falling to $1,275 and $1,000. Weller added:
After the dramatic explosions and deleveraging of May and June, a long-term V-bottom was always unlikely this summer. As we flip the calendar to September, the key question for crypto traders may well be whether we break this summer’s lows or simply retest them to set the stage for the next bull cycle.
Source: Matt Weller, Global Head of Research for FOREX.com and City Index.
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