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We Predicted It! Unwrapping and Analyzing the Reasons Why Crypto Is Crashing

The bearish scenario plays out-crypto is down as buyers show weak resistance to continuing selling pressure

Examining the Bitcoin price chart and the broader cryptocurrency market, I envision a metaphorical Mr. Burns, devilishly grinning with finger-tenting, uttering his trademark 'Excellent!' In our earlier market analysis, we issued a caution about the ETF frenzy, portraying it as bait for over-leveraged retail traders. The grim prediction was that big financial sharks would feed upon the accounts of these traders when the crypto market experiences further downtrends.

To reiterate, the approval of the Bitcoin spot exchange-traded fund (ETF) failed to yield positive results for the cryptocurrency market in the short run. Contrary to expectations of capital influx through the ETF gateway, the market witnessed a 1.6% loss in total capitalization, dropping to $1.56 trillion, while the trading volume experienced a significant 22% increase, it was evidently bearish in nature. The Fear & Greed Index is neutral but leaning towards fear, with a downward trend. It is a key indicator of market sentiment, signaling a strong move towards bearish conditions. This suggests a cautious and hesitant atmosphere among market participants.

The reasons why crypto keeps going down

The reasons for the ongoing downturn in the cryptocurrency market persist, mainly attributed to selling pressure from miners. Miners, who alternate between accumulating and selling phases, started accumulating Bitcoin in mid-2023 during a period of lower prices and profitability. As prices and profitability increased in recent months, miners shifted to a selling phase, a historical trend observed to replenish cash flow or capitalize on market rallies. Recent data indicates that Bitcoin miner reserves are at their lowest since July 2021, totaling 1.83 million coins, still valued at approximately $78 billion.

Another factor contributing to the cryptocurrency market's decline is the impact of the FTX exchange, or what remains of it. FTX, a significant player in cryptocurrency exchanges, recently made headlines by selling a substantial amount of Grayscale's Bitcoin ETF. The focus was on the Grayscale Bitcoin Trust (GBTC), a sizable investment holding over $20 billion in assets despite significant Bitcoin sales this month. FTX employed a common strategy among large cryptocurrency platforms, capitalizing on the price difference between Grayscale Trust shares and the actual Bitcoin value in the fund. FTX held 22.3 million GBTC shares valued at $7 million in late October 2023. On January 23, about 15,200 BTC (equivalent to $590 million) was transferred from known GBTC holdings to the custodian Coinbase, as per data from crypto intelligence firm Arkham.

Lastly, the crypto market is taking a hit because big companies, now allowed to play in the crypto space, are cashing in on the hype-fueled surge. These heavyweights are now the ones pushing down the prices of Bitcoin and the whole market. These reasons were right on the money at the start of the week when CryptoStake published its latest report - they're still relevant today. Now, let's check out the charts and see how the prices are moving. Time to break down what's happening in the market right now.

Bitcoin (BTC) 

BTC/USDT 4-hour chart.

In the Bitcoin market, the buyers faced a setback as they couldn't absorb the selling pressure at $40,000. Consequently, the price descended directly into the previously identified liquidity gap, reaching down to the 200-period Exponential Moving Average (EMA). This EMA serves as a crucial support level that needs to be safeguarded if the buyers aim to turn the market around. Unfortunately, the momentum, as indicated by the MACD indicator, is continuing to decline further into bearish territory. This leaves only a slim 5% probability of bears gaining the upper hand and reversing the prevailing market trend.

If the selling pressure originating from Grayscale persists, the situation appears significant given the data available on Grayscale's website, indicating a total of 600.5 million shares outstanding with 536,694.9 Bitcoin in trust. Adding to this, recent data from CC15Capital reveals that 82,525 Bitcoin has exited the Grayscale Bitcoin Trust (GBTC) since January 10th. This substantial outflow from GBTC could continue to influence the market, posing potential challenges for the Bitcoin price.This week’s target marked at $37,000 remains intact. 

Ethereum (ETH) 

ETH/USDT weekly chart.

As for Ethereum (ETH), the price of the second-largest cryptocurrency hit the anticipated range by the middle of the week rather than towards the end, partly due to a hiccup in the launch of the latest blockchain upgrade on testnets. 

Another reason for the drop in ETH price is a crypto whale making significant transactions, moving a substantial amount of funds across different platforms. This activity, highlighted by the blockchain analytics platform Spot On Chain, involved about $46.02 million in ETH tokens. The whale, using eight wallets, withdrew these funds from major exchanges like Binance and Bitfinex. The complexity didn't stop there; after withdrawing at an average price of around $2,419 per ETH, the whale continued transactions, including interactions with Lido.

On another note, a hoard of traders—more than 137,000—got liquidated in just 24 hours, sending $357 million down the drain, as per Coinglass data. Ethereum traders got hit hard too, with longs and shorts facing $72.82 million and $6.30 million in liquidations within the same 24-hour span. And here's the kicker—these wild market moves coincide with some interesting stuff from Celsius, a crypto lending firm dealing with financial hiccups. They've been shuffling around big chunks of Ethereum, including a hefty 13,000 ETH deposit on Coinbase. Rumors have it that Celsius cashed in over $125 million in Ethereum to settle bills, especially for creditors, as they deal with bankruptcy proceedings.

However, ETH still has a potential 6% decline to reach the lower boundary of the area of interest. However, considering the current dynamics in the market, I would estimate the bottom line to be below $2,000, closely approaching the 200-period Exponential Moving Average (EMA).

Polkadot (DOT) 

DOT/USDT 1-day chart.

Despite being widely recognized as one of the best for staking with high Annual Percentage Yield (APY), Polkadot (DOT) is currently facing a challenging, bearish period. The increased selling pressure has significantly impacted this market, causing the price of DOT to plummet by 8% and dip below both the 50- and 200-Exponential Moving Averages (EMAs). This drop underscores the considerable strength of sellers in this particular market. Despite attempts by buyers to curb the price decline around $6, the prevailing momentum favors sellers. As we approach the end of the week, there is a 40% probability that DOT could reach $5.5. The chart reveals a clear shift in market structure towards bearish territory, with the price breaking through both an ascending channel and the crucial EMAs, both now pointing downward. These developments add further weight to the bearish scenario for Polkadot.

Cosmos (ATOM) ATOM/USDT 1-day chart.

Cosmos (ATOM), another leading cryptocurrency known for its high Annual Percentage Yield (APY) in staking, draws an uncanny resemblance to the enduring tale of Sisyphus from Greek mythology. Much like Sisyphus rolling a boulder up a hill, only to have it roll back down at the summit, ATOM is experiencing a similar struggle. The price range between $12.5, particularly $10 (referred to as the 'enchanted zone'), serves as the metaphorical peak of the mountain, with the price acting like a boulder inevitably rolling downward. 

Currently, Cosmos finds itself 7.7% below this enchanted line, teetering on the edge of potentially descending further to $8.5 (with a 60% probability) or even $8 (with a 15% probability). The use of the Ichimoku Cloud indicator underscores the bearish outlook, with the green cloud transitioning to red, indicating increased selling pressure and suggesting more bearish times ahead for ATOM.

One major reason for Cosmos facing a downturn is the rejection of a proposal seeking to reduce the minimum ATOM inflation to zero. The community voted against Proposal 868, which aimed to make a significant change in the network's economic policy by lowering the minimum inflation parameter from 7% to 0% if over two-thirds of the ATOM supply was bonded on the network. Unfortunately, the proposal, introduced by Cosmos contributor Stakelab, did not get enough support. 

The goal of Proposal 868 was to ease inflationary pressures on the ATOM token, especially in situations where a large portion of coins is bonded. However, 48.6% of validators opposed the proposal, while 25% were in favor, and 25.9% abstained. This proposal followed the acceptance of Proposal 848, which set a cap on the maximum inflation rate at 10%, down from the previous 20%, to regulate token emissions. Discussions around the inflation rate on Cosmos Hub have been ongoing, with some contributors advocating for minimal rates to optimize fresh emissions.