Crypto Market Struggles as Bitcoin Tests USD 20K, Analysts Warn of Further Downside, 3AC Liquidation Reportedly Ordered
The crypto market saw losses across the board on Wednesday as bitcoin (BTC) once again dipped below the USD 20,000 mark, and some analysts pointed to a risk of further downside.
On Wednesday at 10:30 UTC, BTC stood at USD 20,123, down by 4% for the past 24 hours and by 3% for the past week. At the same time, ethereum (ETH) traded at USD 1,133, down by 7% for the day and up by nearly 1% for the week.
Notably, the market sell-off on Wednesday came as news emerged that a court in the British Virgin Islands has ordered the liquidation of the crypto hedge fund Three Arrows Capital, which has for some time been rumored to be insolvent.
Sky News said it has learned that partners from Teneo in the British Virgin Islands has been lined up to handle the insolvency of the fund. It was unclear what the immediate financial implications would be for Three Arrows' creditors, per the report.
Meanwhile, MicroStrategy has taken advantage of the currently low BTC price by adding another BTC 480 to its coffers.
A 'slow week,' but more volatility could come
Writing in a market update on Tuesday, analysts at Arcane Research said that bitcoin has seen “a slow week,” with the coin underperforming altcoins such as ETH and BNB, and even the S&P 500 stock index over the past seven days.
According to the analysts, bitcoin’s underperformance is likely related to the “ever-growing contagion effects” of the Three Arrows Capital insolvency and the collapse of the Terra (LUNA) ecosystem. This has further placed centralized crypto lending and borrowing companies in a difficult situation, as seen with Celsius (CEL) and the withdrawal freeze that it introduced on June 13.
“The market is paying close attention to how the current imbalances are resolved, putting a tight leash on BTC’s ability to see a substantial recovery,” the analysts wrote.
Lastly, the market update also pointed to the current implied volatility (IV) in the bitcoin options market as a sign that traders are “still prepared for another volatility uptick.” This is notable given that bitcoin for the past week has remained relatively calm just above the USD 20,000 level, after seeing increased volatility the week before.
Similar warnings were also given in the latest report from the on-chain analysis firm Glassnode, which noted that “Almost all macro indicators for Bitcoin, ranging from technical, to on-chain are at all-time lows.” It added that this is “coincident with bear market floor formation in previous cycles.”
Still, the firm argued that it is likely that these indicators and models will be “put to the test” given the current macroeconomic environment.
“With so many floor formation signals flashing, the question is, will this time be different,” the firm asked in the report, without providing any definitive outlook as to what the answer may be.
Next week to be more “decisive”
Meanwhile, Joe DiPasquale, CEO of crypto fund manager BitBull Capital, warned in an emailed commentary that although it is “a good sign” that bitcoin has held up around the USD 20,000 level, it has struggled to build momentum above that level.
DiPasquale explained that next week is likely to “be more decisive,” and said a successful test of support at recent lows, or a breakdown below that level, are both scenarios that could happen.
However, he added that “at this point, the chances of a successful retest appear higher.”
USD 12,500 to 13,000 “excellent” for buying
Commenting on the current situation in the bitcoin market from a technical analysis perspective, Mark Newton, technical strategist at Fundstrat Global Advisors, said in a private note cited by Bloomberg that the risk of further declines has increased.
“Most short-term technicals point to an above-average chance of a final ‘washout’-style decline before this bottoms,” Newton wrote.
"The initial warning should occur on a daily close under [USD] 20,491, while under [USD] 19,744 allows for a pullback to retest [USD] 17,592," said the strategist, noting that, technically "not much lies under [USD] 17,592 before [USD] 12,500 to [USD] 13,000, which I expect should be an excellent place for intermediate-term buyers to add to longs."
He concluded that,
“Any move down to test or briefly undercut June lows presents an opportunity [to buy].”
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(Updated at 12:42 UTC with an announcement by MicroStrategy.)