C-Trade insight: As Evergrande fears sweep markets, Bitcoin falls below $43,000!
Cryptocurrency prices fell as a broad selloff swept through global markets, fueled by fears of contagion from China Evergrande Group.
Bitcoin was trading down 8.1 % to $43,743 in the early hours of September 20th, 2021, in New York. It had dropped as much as 10.7 % earlier, taking it below $43,000 and to its lowest level since early August. Ether briefly fell below $3,000 for a brief period of time. Some of the most popular DeFi tokens have experienced significant declines. According to Coinmarketcap.com, Cardano has dropped more than 10% in the last 24 hours, as has Dogecoin, while Polkadot has dropped roughly 16%.
The losses mirrored the broader market's reaction as investors weighed the risks posed by Evergrande's debt problems and this week's Federal Reserve meeting. The S&P 500 dropped % in its worst session since May, while European stocks fell the most in more than two months.
"Some have attributed the sudden drop to the currently ongoing Evergrande situation in China, which has already caused turmoil in traditional markets," wrote Jonas Luethy, a sales trader at GlobalBlock, a digital asset broker based in the United Kingdom. "Analysts suggested a choppy week ahead, with a potential pullback to as low as $41,000."
"This is part of a well-established pattern where it sells off as traders cash in their riskier assets to cover margin calls and/or sit on the sidelines until markets calm down and they feel more comfortable going back into riskier positions," said Leah Wald, CEO of Valkyrie Investments.
According to chartists, Bitcoin could test its 100-day moving average, which is currently around $40,655. If it falls below that level, it may find support at $40,000. Other indicators, however, suggest that it may be in for a reprieve- the coin dropped below the lower limit on the Trading Envelope indicator, indicating that it fell too far, too fast. And its 14-day Relative Strength Index (RSI) at 39 indicates that it is approaching oversold levels.
Even though Bitcoin does not always trade-in tandem with financial markets, a feature that makes it an appealing proposition for portfolio diversification, its 30-day correlation to Nasdaq 100 futures had been consistently positive since February last year. A reading of 0.5 — which is close to now — indicates that they are moving in the same direction quite frequently these days.
While a link with tech stocks makes sense — both types of investments may be thought to appeal to the same tech-savvy investor pool — strong correlations are also showing up for small-cap stocks and the S&P 500, according to investors. This is most likely due to the fact that as Bitcoin becomes more integrated into global financial markets, it should respond more to changes in risk appetite that drive global sentiment.
Meanwhile, El Salvador's President Nayib Bukele announced that the country had "bought the dip" in Bitcoin, adding 150 tokens to its total holdings of 700 — approximately $32 million at current prices. In a controversial move that was met with technical glitches and protests, the nation recently adopted Bitcoin as legal tender.
One of the reasons why Bitcoin prices have been trending higher and recently hit a four-month high is El Salvador's enthusiastic adoption of the cryptocurrency. Still, the market has a long way to go before recouping its May losses.
"On a day like today, when you have the perfect storm, I think people just think, 'What can I sell the quickest?' What do I have access to at 2 in the morning?" said Scott Bauer, chief executive officer of Prosper Trading Academy. "If they're holding crypto, which is obviously a 24-hour market, maybe that's the first place they look," he said, adding that the news out of China is bad for the crypto space.
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