Key Takeaways
What’s Driving the Crypto Market Weakness?
According to Tom Lee, the sell-off was mainly caused by sharks and market makers, who were affected by the sudden crash on October 10.
Is recovery on the map?
Data on the chain pointed to a potential recovery. But the recovery catalyst (a Fed rate cut) was uncertain at the time of writing.
Bitcoins [BTC] This week’s extended correction to $95,000 has broken a key bull market support line at the 365-day moving average (DMA), effectively turning long-term momentum toward bearish.
From a technical chart perspective, Bitcoin could consolidate below the 365DMA or fall to the next $55k level (200WMA, Weekly Moving Average, red) if weakness continues.
Source: Glassnode
Estimation of the chances of recovery
But Fundstrat’s CIO and Bitmine Immersion Chair, Tom Lee, predicted that the crypto market’s weakness is short-lived and could recover quickly.
He said the correction was caused by “sharks” and market makers selling to cover losses from October’s flash crash.
However, he predicted that this could be resolved six to eight weeks after the October 10 debt reduction, putting the recovery timeline after Thanksgiving, i.e. November 27 or early December.
Source:
He added,
“Is this pain short-lived? Yes. Does this change Wall Street’s $ETH super cycle built on blockchain? No.”
Sentiment reset and uncertainty at the Fed
Meanwhile, monthly outflows from Spot BTC ETFs reaches $2.3 billion, the second highest since launch. This strengthened the fear and the risk-off mode among institutional investors, wiping out gains over the past year.
According to analyst Jim Bianco, the cost basis for Bitcoin ETFs was $90,000, making this another crucial level that could trigger outflows if cracked.
Source: Bianco Research
Still, analysts at Santiment and Coinbase, like Tom Lee, were hopeful of a possible recovery.
For SantimentBTC’s social dominance hit a four-month high amid FUD and market fears, a signal that has historically indicated a low point.
Source: Santiment
For their part, Coinbase analysts projected some short-term relief if the Fed cuts rates again.
The only caveat is that the market was pricing in at the time of writing rate break (a 55% chance of a rate cut (a 44% chance of a 25 basis point cut).
As such, this could hurt Coinbase’s positive outlook if a cautious interest rate pause is confirmed.
Overall, the market sell-off and resulting fear have reached levels that could trigger a reversal.
But the potential recovery catalyst, another rate cut by the Fed at its December meeting, remains uncertain. Perhaps upcoming macro prints can provide clarity on this front.