Bitcoin and Cryptos Continue their Losing Streak — Here is Why

The crypto market continues its drawdown this week, with the total crypto market capitalization falling by 8% over the last seven days to reach $1.5 trillion.

This movement has increased Bitcoin's dominance back above the 50% mark as market participants reel from the short-term effects of the newly launched Bitcoin exchange-traded funds (ETFs).

Total crypto market cap. Source: TradingView

Here are reasons why the crypto market is down this week

Bitcoin is having trouble competing with traditional stocks

Apart from the crypto-specific issues, the worsening macroeconomic situation is also underpinning crypto prices. Arthur Hayes, the former CEO of BitMEX, warned investors in his latest blog post that Bitcoin risks a fall between $35,000 and $30,000.

According to Hayes, the United States Federal Reserve could find it difficult to cut rates in the near future as rising shipping costs due to the Houthi attacks on ships in the Red Sea could boost inflation.

The U.S. dollar Index (DXY) has notched higher since the start of the year. DXY index measures the strength of the U.S. dollar against a basket of foreign currencies, including the euro, the British pound, and the Japanese Yen.

The U.S. dollar rose from 5-month lows of 100.5 on Dec. 27, 2023, to a high of 103.75 on Jan.23. This movement suggests that investors believe that despite fiscal problems, the odds still favor the U.S. currency—at least in relative terms.

DXY index. Source: TradingView

In addition, the the S&P 500 index (SPX) notched fresh record highs on Jan. 22 driven by semiconductor and other tech stocks. It is expected that the external factors impacting risk-on assets should also be beneficial for Bitcoin.

However, the drivers for the stock market completely differ from commodities, including cryptocurrencies. For example, the 500 largest U.S. listed companies hoard a combined $2.6 trillion in cash positions, and some generate dividends. In a way, the sector acts as a safe haven in case of a mild recession.

Liquidations and low volume

The debut of spot BTC ETF trading on Jan. 12 ignited a wave of crypto long-position liquidations, with $1.316 billion in liquidations occurring since then.

Crypto long liquidations. Source: Coinglass

The rush of crypto liquidations comes as the entire crypto market is shedding total value locked (TVL) and volumes continue to decrease. The crypto market TVL reached a high of $60.5 billion on Jan. 11, while the current value is at $54.04  billion, reflecting a loss of over 10.6%.

Crypto market volume and TVL. Source: DefiLlama

The total crypto market's volume has also decreased from $7.42 billion to $5.084 over the same period.

As the cryptocurrency market navigates through these multifaceted challenges, the ebb and flow of various economic factors and Bitcoin's price movement will undoubtedly continue to shape the trajectory the market takes in the coming months.

What are the crucial levels that may attract buying in Bitcoin?

Bitcoin price analysis

BTC sank below the $40,000 mark on Jan. 22, indicating that the bulls are rushing to the exit. The price slipped near the strong support of $37,980, which is likely to hold in the short term.

BTC/USDT daily chart. Source: TradingView

Bitcoin's price is attempting to bounce off $37,980, but the bulls may face stiff resistance at the 50-day exponential moving average of $41,810. If the price turns down from the 50-day EMA, the BTC/USDT pair will risk a fall below $38,000. In that case, the big crypto may slump to the next strong support at $34,800.

Buyers are expected to aggressively defend the zone between $34,000 and $38,980. They will have to kick the price above the 50-day EMA to signal a comeback. The bullish momentum may pick up after the pair jumps above $44,700.