Why crypto could be headed for another test of the summer slump
The crypto market has seen during today’s trading session that major cryptocurrencies retreat as much as 20% over the weekend. The near term looks set to go down, at least until the end of the week, according to a group of experts.
At the time of writing, the total crypto market broke below $1 trillion and could retest support at $920 billion. Macro conditions appear to be depressing risk assets, such as cryptocurrencies and stocks,
In a market update shared with NewsBTC, Matt Weller, Global Head of Research for FOREX.com and City Index, the current price action across the sector has been triggered by a reduction in risk appetite by market participants.
There is still a lot of uncertainty around macroeconomic factors that may contribute to the latter. The US dollar (DXY index) has pushed higher as the market seeks shelter from high inflation and uncertainty, which is negatively impacting other major currencies, stocks and cryptoassets.
If the US dollar continues to rise, the total market capitalization of the nascent sector could see a 58% decline, completing a bearish flag formed on the weekly chart. As analyst Caleb Franzen said, this could push the sector to its 2020 levels of around $400 billion and take away much of the profits generated during the last bull run.
If you watched the live stream this morning, you saw me share this potential bear flag too $TOTAL market value of crypto.
That would mean a decline of -58% to $414 billion.
Sets up with key structure.
Hard to see, but worth monitoring as a potential scenario… pic.twitter.com/nleiOsoJ8b
— Caleb Franzen (@CalebFranzen) 22 August 2022
For Bitcoin, this could mean a return to the low $10,000s. According to Weller, Bitcoin saw “lasting damage” as its price was pushed from an annual high of around $48,000 to an annual low of $18,700.
As the price bounced off these lows, BTC formed an ascending channel but was rejected from the 50-day exponential moving average (EMA) last week. As the chart below shows, the price of Bitcoin broke below this channel “leaving a bearish short-term bias for a potential retest of summer lows near $18,700”.
What a crypto crash could do to the price of major digital assets
For the second cryptocurrency after the market Ethereum, a key benchmark for the sector, Weller believes it has seen an “impressive rally”. The cryptocurrency will complete its migration to a Proof-of-Stake (PoS) consensus with “The Merge”, this has supported the bullish momentum.
But in the short term, Ethereum is also trading below the EMA, which could push the price back to its “late July swing low near $1,375”, the expert said. As shown below, if bulls can push the price back to last week’s levels, ETH could retest that support with the risk of falling to $1275 and $1000. Weller added:
After the dramatic explosions and drawdowns we saw in May and June, a long-term V-shaped bottom this summer was always unlikely. As we flip the calendar into September, the key question for crypto traders may well be whether we continue to break the summer lows or simply retest them to set the stage for the next bull cycle.
