Crypto loses 5.5% of total market cap as turmoil drives Bitcoin below 26k

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(Kitco News) -
Markets were rocked by successive shocks on Thursday and Friday, which drove most equities and digital assets downward to end the week.

Bitcoin went into freefall late Thursday, partly due to a Wall Street Journal article which sparked fears that SpaceX and Tesla had liquidated their BTC holdings and that Elon Musk was out on Bitcoin, causing the top cryptocurrency to lose $2500 and the digital currency market to see over $1 billion in liquidations in less than 24 hours.

On Friday, BTC traded as low as $25,745 before bulls managed to push the top cryptocurrency back above the key $26,000 level.

Stocks were also shaken by the announcement that Chinese commercial real estate giant Evergrande was filing for bankruptcy in the United States, exacerbating concerns about the beleaguered commercial real estate sector in China and around the world and reigniting fears of recession, sparking a massive move away from risk-on assets.

At the closing bell, the S&P was flat, while the Nasdaq was down 0.20%. The Dow managed to finish in positive territory, up 0.07% on the session.

Bitcoin trends downward

Bitcoin’s dramatic decline took markets by surprise as it came after a week-long stretch of narrow range trading for BTC and days of historically low volatility that brought trading volumes down. On Wednesday, Bitcoin failed to hold support above $29,000 shortly after 4 PM EDT, which sparked the beginning of a new downtrend, but bulls managed to maintain a floor above $28,400.

Once Bitcoin broke definitively below $28,000 shortly after 11:30 AM EDT on Thursday, however, it fell all the way to $27,789 as buyers attempted to hold the line for the next few hours. But the selling pressure proved too much and shortly after 5:30 pm, BTC collapsed over $1000 in just a few minutes, sparking widespread panic in the crypto markets.

Data provided by TradingView shows that Bitcoin (BTC) lost over 1.6% of its value on Friday alone and was down over 11% on the week.

Brian Evans, CEO and founder of BDE Ventures, told Kitco News that there are a number of things feeding into the current crypto downturn.

“There might be multiple reasons that explain this big selloff with Bitcoin, and I’m not certain it has anything to do with news that SpaceX might – emphasis on might – have sold off its BTC balance,” he said. “Basically, volumes had contracted significantly, and we haven’t been seeing much new retail participation in the space. If anything, this event seems to be largely driven by a flushing out of leveraged positions, which happens periodically with BTC and in rather dramatic fashion.”

He believes that regardless of the particular causes or mitigating factors for Bitcoin’s sudden collapse, the market is in for more volatility in the near term. “The macroeconomic backdrop just seems rather uncertain at the moment, with interest rates still really high and mounting signs of slowing economic growth more generally,” Evans said. “In short, I think there’s a lot of caution among market participants now.”

Markus Levin, co-founder of XYO Network, told Kitco News that he doesn’t see a floor for BTC in the near term. “I suspect that Bitcoin could fall further because the economic situation globally is just so precarious. China appears to be in a deep recession and interest rates in the United States are still relatively very high.”

Levin expects the current BTC selloff will continue because retail investors lack the ammo to step in and support the cryptocurrency even if they wanted to.

“I don’t think retail has all that much discretionary income to invest in digital assets at the moment,” he said. “What will be interesting to see is whether or not big institutional buyers are going to scoop up relatively cheap Bitcoin. That seems to be the case, especially since a spot ETF for BTC seems very likely and also because BlackRock and Fidelity are involved in those ETF applications.”

Market analyst Rekt Capital noted that Bitcoin had posted a very bearish technical signal, and the top crypto could soon see 26k as resistance rather than support as in trends downward.

And market analyst Crypto Tony noted wryly that Litecoin provided an excellent indication of Friday’s market sentiment.

Altcoins dragged lower

Bitcoin’s troubles dragged the altcoin market lower on Friday, with market performance data from Coin360 showing that nearly all of the tokens in the top 100 traded in the red. The only notable gainers were Injective (INJ), which was up 7.8%, FLEX (FLEX) which gained 4.7%, and Kaspa (KAS), which was up 1.9% on the day.

Evans said that one interesting aspect of the selloff is how many altcoins held up relatively well compared to Bitcoin. “Usually, in these kinds of scenarios, you see altcoins sell off in a much more pronounced way relative to Bitcoin,” he said. “This could have something to do with news that a futures ETF for Ethereum might get approved. This might have something to do with other blockchain ecosystems like Ethereum and Solana garnering more and more network effects, meaning that they have more and more committed users who are becoming less prone to selling during times of turmoil.”

The overall cryptocurrency market cap now stands at $1.05 trillion after it lost 5.5% on Friday, and Bitcoin’s dominance rate is 48.3%.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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