- Bitcoin fell below the critical level of $40,000
- Despite bearish trends, the market maintains a balanced mix of long and short positions
In a surprising turn of events, Bitcoin (BTC) has seen its value fall below $40,000. This marked a significant drop from the recent high of around $49,000 on January 11, 2024.
Although the $40,000 mark is considered a crucial psychological level for Bitcoin, experts believe that a breach of this level would not necessarily lead to a widespread sell-off. The next support level is expected to be around $38,000.
Increasing market uncertainty
Greek.live took to X (formerly Twitter) to highlight the increase in market uncertainty and expectations of price variability.
Bitcoin fell below $40,000 as short-term IVs recovered. The total VRP (volatility risk premium) has increased and the Skew curve is skewed towards put options.
The above options data reflects the existence of a certain number of short-term panic orders in the market, the market… pic.twitter.com/D5wnuhSWz2— Greeks.live (@GreeksLive) January 23, 2024
A rising VRP suggests that the options market expects future volatility to be higher than what recent historical data indicates. This can be seen as a sign of uncertainty or risk aversion among investors.
This skew indicates that traders are more concerned about potential downside risks. Short-term orders may be driven by fear of further declines, prompting traders to take quick, protective action.
Reasons behind the demise of Bitcoin
The cryptocurrency market is seeing a general trend of weakness across all digital assets, after a significant increase last year. In fact, Bitcoin’s value increased by approximately approx 160% by 2023.
This upward trend was largely driven by US expectations Securities and Exchange Commission (SEC) would approve the introduction of spot Bitcoin exchange-traded funds (ETFs).
However, after the SEC’s approval, markets began to withdraw some of these gains. This was influenced by a selling trend in response to the news, which was not enough to offset the profit-taking of speculative traders.
The current market scenario of BTC
At the time of writing, BTC exchanged hands at $39,108. This is the first time since early December that the cryptocurrency has fallen to this price.
Source: TradingView
The Relative Strength Index (RSI) registered a reading of 34.18, indicating a potentially undervalued status in the market. At the same time, the Chaikin Money Flow (CMF) stood at -0.02, indicating slightly negative market sentiment.
Looking at the longer time frame (weekly chart), the RSI presented a more bullish outlook at 58.29, although it was trending down. Meanwhile, the CMF stood at 0.16, indicating a moderately positive inflow of money into the market.