Key Takeaways
What’s driving the crypto market weakness?
Per Tom Lee, the sell-off was primarily driven by sharks and market makers, who were affected by the October 10 flash crash.
Is a recovery on the cards?
On-chain data signaled a potential rebound. But the recovery catalyst (a Fed rate cut) was uncertain as of writing.
Bitcoin’s [BTC] extended correction this week to $95k cleared a key bull market support line of the 365-day moving average (DMA), effectively flipping its long-term momentum to bearish.
From a technical chart perspective, Bitcoin could consolidate below the 365DMA or drop to the next level of $55k (200WMA, Weekly Moving Average, red) if the weakness continues.
Source: Glassnode
Assessing the odds of a recovery
But Fundstrat’s CIO and Bitmine Immersion Chair, Tom Lee, projected that the crypto market weakness is short-term and could rebound soon.
According to him, the correction was being driven by “sharks” and market makers selling to cover losses from the October flash crash.
However, he predicted that this could resolve 6-8 weeks after the 10th of October deleveraging event, putting the recovery timeline after Thanksgiving, i.e., the 27th of November or early December.
Source: X
He added,
“Is this pain short-term? Yes. Does this change the $ETH supercycle of Wall Street building on blockchain? No.”
Sentiment reset and Fed uncertainty
Meanwhile, monthly outflows from Spot BTC ETFs reached $2.3 billion, the second-highest since their launch. This further reinforced the distress and risk-off mode among institutional investors, wiping out year-to-date gains.
According to analyst Jim Bianco, the Cost Basis for Bitcoin ETFs was at $90k, making it another crucial level that could trigger outflows if cracked.
Source: Bianco Research
Even so, like Tom Lee, Santiment and Coinbase analysts were hopeful for a potential recovery.
For Santiment, BTC Social Dominance hit a 4-month high amid FUD and market fear, a signal that has historically indicated a bottom.
Source: Santiment
For their part, Coinbase analysts projected a short-term relief only if the Fed makes another interest rate cut.
The only caveat is that, as of the time of writing, the market was pricing in a rate pause (a 55% chance) rather than a rate cut (a 44% chance of a 25-bps cut).
As such, this could dent Coinbase’s positive outlook if a cautious rate pause is confirmed.
Overall, the market sell-off and ensuing fear have hit levels that could trigger a reversal.
But the potential recovery catalyst, another Fed rate cut in the December meeting, remains uncertain. Perhaps upcoming macro prints could offer clarity on this front.
