Cryptocurrencies face a critical test

The broad cryptocurrency market saw its downtrend trigger another volatile display of selling across the board at the start of this week.

Nervous Sentiment and Panic Selling Hit Crypto Markets

BTC/USD and ETH/USD both hit long-term lows on Monday. The selloff displayed in yesterday’s price action followed poor trading performance in the broad cryptocurrency market over the weekend. The bearish trend that has gripped the digital asset landscape intensified over the past week as perceived technical support levels have been pushed aside and prices have been beaten.

Correlations with the cryptocurrency world and the NASDAQ 100 index have been made during the sell-off which has become more violent in recent weeks.

It is believed that because cryptocurrencies have received backing from large institutions such as hedge funds, they are suffering the same fate as riskier NASDAQ 100 stocks.. This has apparently produced strong selling in crypto and stocks as riskier assets are sold off and safe havens are sought as markets react to the economic outlook not being particularly bright over the medium term.

True or false: Cryptos mirroring the NASDAQ

the correlation regarding the price action in the crypto markets against the NASDAQ 100 has not been proven, but the jittery sentiment in both spheres can be seen through similar images in their respective price charts. However, cryptocurrencies have additional worries that can affect current sentiment in major digital assets and cause rampant selling.

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While some optimists and influencers may say that long-term cryptocurrency holders are simply cashing in from the market, one may wonder whether long-term digital asset speculators have profited over the past year as the market has been extremely volatile.. Price ratios in many major cryptocurrencies are hitting lows not seen since July 2021, such as Bitcoin and Ethereum. If these support levels do not hold, a retest of values ​​seen in March 2021 could also develop rapidly.

Bitcoin Price Chart: Near 1-Year Lows

Bitcoin Price Chart: Near 1-Year Lows

Margin calls and capitulation in cryptocurrencies

Speculators who used margin to make their crypto bets with brokers allowing very high leveragemay be affected by calls from these brokers to put more money in their accounts or cash out their losing positions. If prices in the vast cryptocurrency market continue to fall, it makes sense that some sellers are not doing so by choice, but because they are forced into it by highly leveraged exchanges and brokers.

Nasdaq 100 1-Year Chart

Nasdaq 100 1 year chart

Stablecoins under sudden pressure: TerraUSD

Monday’s trading also showed evidence that “so-called” stablecoins like TerraUSD and Tether came under pressure. While Tether’s USDT/USD only dropped to 99 cents in trading yesterday, which isn’t a huge differential, the price of the TerraUSD coin that serves the Terra ecosystem, and its pairing LUNA /USD have been shaken. TerraUSD price plunged wildly yesterday and is still seeing heavy trading as of this writing as it moves slightly below 0.92 cents per coin.

A systemic failure in the stablecoin market would set off massive alarm bells in the cryptocurrency world. TerraUSD price should be watched as a behavioral sentiment barometer. If the value of TerraUSD remains significantly below its expected target of $1, it could potentially trigger volatile ripple effects in the cryptocurrency world. It is believed that if Terra is to stabilize its TerraUSD coin, it should be achieved by selling some of its Bitcoin holdings.

TerraUSD Price Chart

TerraUSD Price Chart

Final Thoughts

Since early April, the vast cryptocurrency market has essentially killed off the two-week bull run enjoyed by many digital assets from mid-March 2022. The two-week rise in cryptocurrencies was seen as a potential turning point, which was poised to erase the bearish shadows that had plagued digital assets since November 2021. However, not only has the downtrend reappeared, but it has brought many of the major cryptocurrencies to new lows.

Day traders can speculate on short-term positions and profit from the market. However, betting on cryptocurrencies and being on the wrong side of the price action can be an extremely costly mistake. If the broad digital asset market remains under pressure in the near term and BTC/USD falls below $28,800, it will trigger additional fears that not only are the perceived long-term support levels about to show more weakness, but more dramatic declines could occur. Long-term traders who have held positions may be forced to sell their digital assets if their accounts fall below necessary margin requirements, which could lead to further downward price pressures in the crypto market.

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