What happened with those crazy candles last week? Bitcoin shot up out of nowhere, hitting the $68,000 mark headfirst, only to tumble back down just as quickly with a massive bump. Altcoins, which had joined Bitcoin’s rise, were hit even harder. Many smaller cryptocurrencies saw double-digit percentage losses overnight, leaving them worse off than before Bitcoin’s recent surge began about a week ago.
The last four times Bitcoin failed to break above the upper edge of its downtrend channel – currently at around $69,000 – sharp sell-offs followed. Will the next big sell-off hit soon? And what’s going to happen to the already weak altcoins?
Bitcoin Stalls, Altcoins Bleed – Why?
Lately, it hasn’t been much fun being a crypto investor. In the first half of October, Bitcoin drifted sideways in a sluggish phase, only occasionally catching attention with sudden sell-offs. While stocks and indexes are climbing to all-time highs, the leading crypto asset has been stuck in its parallel downtrend channel since early March.
Is this what people invest in crypto for? To celebrate a 3% or 4% gain every now and then while stocks double that? And to sit in double-digit losses when the Nasdaq and the S&P take a small dip? Sure, if you want big gains, you must endure volatility. But what if it just keeps going down?
Recent months have been tough on Bitcoin buyers and especially brutal for altcoin investors, many of whom have already given up halfway. From a psychological standpoint, it’s hardest when nothing happens. There’s nothing more difficult than sitting and waiting – especially when you’re deep in the red, feeling like you’re just waiting for the next big sell-off while being tied to a losing position.
You start blaming yourself for not waiting to buy in, regretting the purchase altogether. So why is crypto so weak right now? The answer lies in the overall market sentiment. Uncertainty in the global economy, geopolitical tensions in the Middle East, and the unresolved U.S. presidential election leave many future questions wide open. And what the market dislikes most is uncertainty.
Is the Next Bitcoin Crash Coming?
People hate having to wait and do nothing. We want to feel something, take action, and shape our destiny. And because the market is just a reflection of millions of people’s emotions, it behaves the same way. The market – or more precisely, the crowd of market participants – hates sitting on the sidelines, waiting to see where things are headed politically and economically.
In uncertain times, we humans naturally assume the worst, catastrophizing the situation. As a result, many hedge against potential losses before anything actually happens. High-volatility assets are often the first to be sold off during these periods of uncertainty, which is why the crypto market, especially altcoins, is struggling.
This is also connected to recent bad experiences. Over the past few months, the crypto market has seen a similar pattern play out four times: Bitcoin attempted to break out to a new all-time high but failed at the upper edge of its parallel downtrend channel. The negative consequences for its price became progressively worse.
After the first failure in mid-March, Bitcoin dropped about 18% before stabilizing and attempting another breakout. Following the second failed attempt in early April, it fell nearly 23%. After the third in early June, it declined by around 26%. The most severe panic came after the fourth test at the end of July, when Bitcoin sold off by a hefty 30%.
Participants Are Traumatized – The Perfect Setup?
While Bitcoin recently got closer to its all-time high than it has in weeks, the altcoin sector is far from testing its yearly highs from March. The higher up you go on the risk and volatility scale, the weaker the current performance becomes. Bitcoin corrected around 27% during its six-month sideways phase. The top 125 altcoins without BTC and Ethereum (Total3) dropped by about 35% over the same period, and smaller cryptocurrencies outside the top 10 fell by more than 50%. These figures refer to the combined market capitalization, which represents the average. Many individual projects have been hit even harder, dragging numerous portfolios into the red.
After the fifth failure at the upper edge of the downtrend channel, alarm bells are ringing for many crypto investors. Will we see another double-digit percentage drop? Are we going to retest the lower edge of the channel, which currently sits just above $50,000? For altcoins, such a negative scenario would be devastating – a 15% to 20% Bitcoin sell-off could lead to losses of 40% to 60% or more for smaller cryptocurrencies. Although this extreme outcome isn’t necessarily likely after Bitcoin’s recent strength, many market participants are hedging by selling their altcoins or swapping them for Bitcoin. A lot of capital is also flowing into meme coins, which are again rising quickly – but also selling off just as fast.
The meme hype, combined with geopolitical and economic uncertainty and technical analysis doubts surrounding Bitcoin, is contributing to the current weakness in altcoins. The market simply can’t handle the uncertainty and wants to hedge. But that’s actually the best setup for an unexpected breakout. Every time Bitcoin tested the upper edge of its downtrend channel in recent months, the market expected a convincing breakout – and it kept failing.
Despite Bitcoin’s currenty high prices, market sentiment hasn’t been this poor in the past six months. In a way, that’s a very good sign. Only when all the weak hands have been flushed out of the market and repeated liquidations have shaken out the most relentless leveraged traders can we see a sustainable rally. Caution is still necessary because sentiment is poor – but that’s exactly what gives us hope.