Bitcoin’s Bearish Shift Amid Sell-Off: Potential Recovery Tied to Uncertain Fed Rate Cut

• Flash crash effects: The October 10 event triggered selling by large traders, exacerbating the Bitcoin market weakness.

• On-chain metrics show rising social dominance for BTC, often a precursor to market bottoms during periods of high fear.

• Spot Bitcoin ETF outflows hit $2.3 billion monthly, wiping out year-to-date gains and signaling institutional caution amid the correction.

Explore the causes of Bitcoin’s market weakness and signs of potential recovery in this analysis. Discover expert insights on technical supports and Fed rate impacts for informed crypto investing strategies.

What is causing the current Bitcoin market weakness?

Bitcoin market weakness has intensified as the cryptocurrency’s price dipped to $95k, breaking below the critical 365-day moving average and shifting long-term momentum to bearish territory. This correction follows a broader sell-off influenced by deleveraging from an October flash crash, impacting market makers and large holders. Institutional sentiment has soured, with significant ETF outflows adding pressure, though on-chain data hints at stabilization.

How are technical indicators reflecting this Bitcoin correction?

Technical analysis reveals Bitcoin’s breach of the 365-day moving average as a pivotal shift, potentially leading to consolidation or further declines to the 200-week moving average around $55k if selling persists. Data from Glassnode highlights this support line flip, underscoring increased volatility in the broader crypto landscape. Short sentences aid quick understanding: key levels are now tested, momentum indicators confirm bearish trends, and historical patterns suggest watching for reversal signals amid ongoing uncertainty.

Bitcoin’s [BTC] extended correction this week to $95k cleared a key bull market support line of the 365-day moving average (DMA), effectively flipping its long-term momentum to bearish. 

From a technical chart perspective, Bitcoin could consolidate below the 365DMA or drop to the next level of $55k (200WMA, Weekly Moving Average, red) if the weakness continues. 

Source: Glassnode

Assessing the odds of a recovery

Fundstrat’s Chief Investment Officer Tom Lee views the current crypto downturn as temporary, attributing it to forced selling by major players recovering from the October flash crash. He anticipates resolution within 6-8 weeks post-event, aligning with late November or early December timelines. This perspective maintains optimism for underlying market fundamentals, particularly in Ethereum’s institutional adoption.

But Fundstrat’s CIO and Bitmine Immersion Chair, Tom Lee, projected that the crypto market weakness is short-term and could rebound soon. 

According to him, the correction was being driven by “sharks” and market makers selling to cover losses from the October flash crash. 

However, he predicted that this could resolve 6-8 weeks after the 10th of October deleveraging event, putting the recovery timeline after Thanksgiving, i.e., the 27th of November or early December. 

Source: X

He added, 

“Is this pain short-term? Yes. Does this change the $ETH supercycle of Wall Street building on blockchain? No.”

Sentiment reset and Fed uncertainty

Monthly outflows from spot Bitcoin ETFs totaled $2.3 billion, marking the second-highest since inception and erasing year-to-date inflows, which reflects deep institutional unease. Analyst Jim Bianco notes the ETF cost basis at $90k as a vital threshold; a break below could accelerate exits. Despite this, signals from Santiment and Coinbase point to possible bottoms, contingent on macroeconomic shifts.

Meanwhile, monthly outflows from Spot BTC ETFs reached $2.3 billion, the second-highest since their launch. This further reinforced the distress and risk-off mode among institutional investors, wiping out year-to-date gains. 

According to analyst Jim Bianco, the Cost Basis for Bitcoin ETFs was at $90k, making it another crucial level that could trigger outflows if cracked. 

Source: Bianco Research

Even so, like Tom Lee, Santiment and Coinbase analysts were hopeful for a potential recovery.

For Santiment, BTC Social Dominance hit a 4-month high amid FUD and market fear, a signal that has historically indicated a bottom. 

Source: Santiment

For their part, Coinbase analysts projected a short-term relief only if the Fed makes another interest rate cut. 

The only caveat is that, as of the time of writing, the market was pricing in a rate pause (a 55% chance) rather than a rate cut (a 44% chance of a 25-bps cut).

As such, this could dent Coinbase’s positive outlook if a cautious rate pause is confirmed.  

Overall, the market sell-off and ensuing fear have hit levels that could trigger a reversal.

But the potential recovery catalyst, another Fed rate cut in the December meeting, remains uncertain. Perhaps upcoming macro prints could offer clarity on this front. 

Frequently Asked Questions

Why has Bitcoin experienced such a sharp correction below $100k recently?

The Bitcoin price drop below $100k results from cascading effects of the October 10 flash crash, prompting market makers and large holders to liquidate positions. This breached technical supports like the 365-day moving average, while ETF outflows of $2.3 billion amplified the decline, reflecting heightened institutional risk aversion in a volatile environment.

Will Bitcoin’s market weakness lead to a prolonged bear phase?

Bitcoin’s current weakness may not extend into a full bear market, as historical on-chain data from sources like Santiment shows similar fear peaks often precede rebounds. Expert views, including from Tom Lee at Fundstrat, emphasize short-term pain with intact long-term bullish drivers, though a Federal Reserve rate pause could delay immediate recovery.

Key Takeaways

• Flash Crash Impact: The October 10 event drove selling by sharks and market makers, fueling the Bitcoin market weakness and technical breakdowns.
• Recovery Signals: Elevated BTC social dominance and ETF cost basis levels indicate potential bottoms, supported by historical patterns from Santiment data.
• Fed’s Role: A December rate cut could spark relief, but current odds favor a pause, urging investors to monitor macro indicators closely.

Conclusion

The ongoing Bitcoin market weakness and broader crypto correction highlight vulnerabilities exposed by flash crashes and institutional outflows, yet on-chain metrics and technical analyses from Glassnode and Santiment suggest resilience. As secondary factors like ETF flows stabilize, a Bitcoin recovery hinges on Federal Reserve actions. Investors should stay vigilant for upcoming economic data, positioning for potential upside in this dynamic landscape.