“When it rains, it pours” is an old saying finding new relevance in the cryptocurrency markets on May 9 as traders face another day of pain and the current price decline brings Bitcoin (BTC) to its lowest level in 2022.
Data from Cointelegraph Markets Pro and TradingView shows that the BTC selloff on May 9 intensified as the trading day progressed with Bitcoin hitting a daily low of $31,000 as bulls scrambled to mount what amounted to a weak defense.
BTC/USDT 1-day chart. Source: TradingView
Here’s a look at some of the developments that led up to May 9’s price declines and what traders can look for as the crypto market heads deeper into bear territory.
Further downside is a possibility
Bitcoin bulls have struggled to establish a solid floor of support over the past couple of months because bears have been persistent in their drive to push the price lower.
Currently, BTC price down 50% from its all-time high in November and on-chain analysis firm Glassnode noted in a recent report that this decline “remains modest when compared to the ultimate lows of prior Bitcoin bear markets.”
Bitcoin price drawdown from all-time highs. Source: Glassnode
As shown in the graphic above, the drawdown in July 2021 reached a peak of -54.2% while the “bear markets of 2015, 2018 and March 2020 capitulated at lows between -77.2% and -85.5% off the all-time high.”
Network profitability has also declined to levels that are similar to what was seen during the late-2018 and late 2019-2020 bear markets.
Bitcoin: Supply, entities and addresses in profit. Source: Glassnode
“It should be noted that both instances were prior to the final capitulation flush out event. As such, further downside remains a risk, and would be within the realm of historical cycle performance.”
Traders are taking a risk-off approach
A deeper dive into the on-chain data shows that the capitulation by Bitcoin holders has intensified in recent weeks as the price has continued to trend lower.
Evidence for this capitulation can be found looking at the Bitcoin exchange fee dominance, which measures what percentage of the fees on the Bitcoin network was paid to deposit BTC to an exchange.
Bitcoin exchange fee dominance. Source: Glassnode
According to Glassnode, the sudden spike in the Bitcoin exchange fee dominance to 15.2% is the second-highest level in history and “further supports the case that Bitcoin investors were seeking to de-risk, sell and/or add collateral to margin in response to market volatility.”
Additional evidence of a rise in risk-off sentiment can be found looking at stablecoin supplies, which have declined over the past two months after increasing from $5.33 billion to $158.25 billion since the market selloff in March 2020.
After reaching a peak of $161.53 billion in early April, the aggregate stablecoin supply has declined by $3.285 billion as an uptick in redemptions of USD Coin (USDC) has outpaced inflows across all stablecoin tokens.
Aggregate stablecoin supply 30-day change. Source: Glassnode
“Overall, there are a number of signals of net weakness in the space, many of which indicate that risk-off sentiment remains the core market position at this time.”
The possibility of holding above $30,000
The recent weakness across the market has led many crypto traders to flip bearish and accept the possibility of a decline to $28,000, which has started to pique the contrarian perspectives of some analysts including futures trader Peter Brandt, who posted the following tweet addressing the change in sentiment.
Now that 28,000 is so widely accepted as downside target I am forced to change my view. Either price holds above 30,000 or tanks through 28,000
– Peter Brandt (@PeterLBrandt) May 8, 2022
It remains to be seen what comes next for BTC, but it’s best to prepare for more volatility because macro global events continue to put pressure on financial markets.
“Bitcoin remains highly correlated to the broader economic conditions, which suggests the road ahead may unfortunately be a rocky one, at least for the time being.”
The overall cryptocurrency market cap now stands at $1.467 trillion and Bitcoin’s dominance rate is 41.7%.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.