- BTC’s biggest threat right now is a decline in institutional support at a time when volatility is increasing.
- If this trend continues, $90,000 could serve as a local support level.
Bitcoin’s recent price action has shown resilience, with the market remaining bullish despite Bitcoin [BTC] entering the last month of the year without breaking the $100,000 barrier. Strong ask continues to absorb pressure from the sell side, reinforcing this optimism.
Additionally, while numerous weak hands have exited the cycle after securing huge gains, the lack of a solid pullback highlights a robust sense of FOMO among investors.
But even as data points to a steady trajectory towards $100,000 and the Fed’s expected rate cut increases optimism, AMBCrypto explores whether a potential retracement to $90,000 could act as the necessary catalyst for Bitcoin’s next big move.
The loss of institutional support could pose a major threat
Currently, Bitcoin is at a crucial crossroads, with its trajectory dependent on continued support fueled by steady accumulation from both retail and institutional investors.
Microstrategya company that has invested heavily in BTC sees its shares [MSTR] respond more dramatically to changes in Bitcoin’s value.
As highlighted in the chart below, MSTR’s volatility, which is four times that of BTC, means that MicroStrategy’s share price is expected to fluctuate around four times as much as Bitcoin’s, posing an increased and calculable risk for its investors bring with it.
Source: IntoTheBlock
In this environment, Bitcoin’s appeal as a store of value could weaken, potentially leading to institutional sell-offs and liquidations.
This is because MicroStrategy shares are becoming more volatile, prompting investors to reassess their exposure to BTC, especially through MSTR, which could lead to a broader market correction.
As a result, MSTR’s premium BTC possessions have fallen from a peak of 240 on November 20 to 135 in just under seven trading days. If this selling pressure continues unchecked, it could cause significant losses for Bitcoin holders, potentially driving the price down even further.
So keep volatility under control
At 63, the crypto volatility index indicates noticeable, but not extreme, market volatility. However, this follows a recovery just two days ago from the 60 threshold, which has historically been a significant support level.
Source: CryptoVolatilityIndex
Simply put, if the volatility index rebounds strongly, it could rise to or above the previous rejection point of around 70. A CVI above 70 indicates higher expected price swings and greater market uncertainty.
While this could be either bullish or bearish, examination of Bitcoin’s current price chart, which shows severe swings over the past week, suggests that increased volatility could undermine institutional confidence in a parabolic run.
Historically, a volatility index peaking has coincided with Bitcoin hitting a low.
This further supports AMBCrypto’s previous contention that Bitcoin could hit a local low, leading to a healthy retracement, lower volatility, increased institutional FOMO, and a possible outbreak of inconsistent price action.
Where could BTC see a healthy retracement?
In a recent one report$90,000 was identified as a key support level, marking significant bottom formation driven by robust retail accumulation and support by ETFs.
This suggests that if volatility moves into the ‘high’ territory, where significant swings can occur over a short period of time, the chances of a pullback remain high.
In such a scenario, $90,000 could serve as a strong liquidity pool, attracting both swing traders and institutional activity, leading to a potential price increase.
Moreover, with the upcoming Fed meeting, traders are raising their interest rates bets on a 25 basis point interest rate cut in December. The market now estimates a 64.7% chance of this happening, up from 55.7% a week ago.
Read Bitcoin’s [BTC] Price forecast 2024-25
Certainly, this macroeconomic move is likely to lead to sudden swings in the derivatives market, with the likelihood of a short squeeze remaining high. A sharp price increase could force short sellers to close their positions.
As a result, market volatility is likely to increase, creating favorable conditions for a healthy retracement as many institutions may pull back from accumulating Bitcoin in this ‘risky’ environment.