Bitcoin Risks Drop to $35K as Investors Take Refuge on Stablecoins

Bitcoin (BTC) has climbed above the $90,000 level today but, rather than the beginning of a recovery, this rebound feels more like a potential ‘dead cat bounce’.

Data from Lookonchain indicated today that Circle, the issuer of the second largest stablecoin, USDC, has minted nearly $18 billion worth of new tokens since the October 10 crash.

This is a sign that investors are rotating to stablecoins at a point when the market is crashing.

The Fear and Greed Index shows that market participants panicked right after the head of the U.S. Federal Reserve, Jerome Powell, questioned the odds of a rate cut in December.

Fear and Greed Index – Source: CoinMarketCap

This sentiment gauge dropped to its lowest level on record at 11 as analysts revisited their projections for cryptos. The odds of a rate cut plummeted to 40% shortly afterwards, but have now recovered to nearly 90% after a strong jobs report last week.

Bitcoin Risks Drop to $35K If Sellers Show Up Once It Hits $100K

As we mentioned in a recent prediction, the odds of a big decline are quite high for BTC after the token broke below its 50-week exponential moving average (EMA).

The last time this happened, the top crypto lost over 60% of its value, measured from the closing price of the week when the bearish breakout occurred.

BTC/USD Daily Chart (Coinbase) – Source: TradingView

An increase in the amount of stablecoins in circulation favours that view. Although that might not be the only reason why more USDC is flooding the market. New stablecoins could also be minted as a result of an increase in the rate at which institutions and individuals are embracing cryptocurrencies.

However, the timing is much more consistent with a flight-to-safety move at a point when fear is rampant.

The $78,000 level would be the key area to watch in case the downtrend accelerates. This means a 14% downside risk for BTC in the next few days.

Open Interest Shows that Traders Are Not Coming Back Yet

Traders’ participation in the futures market remains heavily depressed, which further confirms a bearish outlook.

Data from CoinGlass indicates that OI sits at 658,000 BTC, down 12.5% from its recent peak. Back on November 20, when OI peaked, BTC dropped to $80,000.

Open Interest in BTC Futures – Source: CoinGlass

It seems that a big volume of short positions was opened at that point as bears were positioning for an even stronger downturn. Nonetheless, this recent decline shows that bears were squeezed, which explains why BTC has bounced so strongly.

Now, the road seems paved for the continuation of the downtrend as this rebound has not done enough to attract fresh buyers. Moving forward, we could expect a rebound toward $100,000 to retest that psychological threshold from below.

If the market rejects a move above this mark, that could set in motion a drop to the $78,000 price zone. The weekly Relative Strength Index (RSI) is on a free fall, but has not yet hit extreme levels. Hence, the downtrend still has room to continue.

If history repeats and we get a downturn similar to the one seen in 2022, after BTC’s bearish breakout below the 50-week EMA, this means that the token could drop to around $35,000.

Hard to envision that possibility at these levels, but it has happened already once; it can easily happen twice.