Why is the Crypto Market Down Today? BTC At Risk of Dropping to $38K

The market value of cryptocurrencies has finally dipped below $3 trillion today as Bitcoin (BTC) has shed 10% in the past 24 hours.

Except for BNB Coin (BNB), all tokens in the top 5 are now in negative territory when it comes to their year-to-date (YTD) performance.

But why is the crypto market down today, and what exactly is causing this recent sell-off?

Fears of a Credit Crisis

The Federal Reserve of New York convened secretly with top executives from Wall Street banks to discuss their liquidity situation last week.

This meeting sparked fears of a potential credit crisis, especially as usage of the Fed’s emergency repos spiked lately.

Emergency Repo Usage – Source: Federal Reserve of New York

“President Williams convened the New York Fed’s primary trading counterparties (primary dealers) to continue engagement on the purpose of the standing repo facility as a tool of monetary policy implementation and to solicit feedback that ensures it remains effective for rate control,” commented a spokesperson from the New York Fed.

Crypto Liquidations Spike to $2 Billion

Crypto liquidations have spiked in the past month and a half, especially after the October 10 flash crash.

Back then, nearly $16 billion worth of long positions were wiped out in just a few hours. This event spooked market participants as it revealed the unsustainable nature of the latest rally, which was mostly built on excess leverage.

In November alone, liquidations have surpassed $10 billion. As traders continue to get wrecked, interest in the crypto market wanes, which further accelerates the selling spree.

Meanwhile, in the past 24 hours, over $2 billion in crypto trading positions have been flushed out as a result of today’s steep drop.

Fear and Greed Index Drops to Lowest Level On Record

The Fear and Greed Index, a market sentiment gauge created by CoinMarketCap, has reached its lowest level since its inception in June 2023.

Fear and Greed Index – Source: CoinMarketCap

At 11, it indicates that the market is in “Extreme Fear” mode as a result of the latest developments. The lowest reading before this one was in April, as the market grappled with the consequences of the U.S.-China tariff war.

Back then, the market hit its yearly low and started to recover rapidly until BTC made a new all-time high around a month later.

Bitcoin Loses Key EMA Support

We have been monitoring for weeks how Bitcoin (BTC) reacted to another touch of a key exponential moving average (EMA).

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

Prior to this bearish breakout, the token had bounced off this key technical indicator multiple times and moved to higher highs just a few weeks after.

However, this time is different. The price has broken below this mark. The breakout was accompanied by above-average trading volumes, confirming that the direction of the trend has shifted.

The next area of support to watch for BTC would be $75,000, meaning a 10% downside risk. The Relative Strength Index (RSI) in this higher time frame is on a free fall and has already sent a sell signal upon crossing below the 14-period moving average.

Considering that BTC would be 40% off its highs if it hits this key support, we have already entered bear market territory with this latest sell-off. That said, this is still a minor decline compared to previous bear markets.

For example, Bitcoin dropped by 63% the last time it crossed below this key EMA support. If we extrapolate that performance to today’s levels, we get a bearish price prediction of $38,000 for the top crypto.