In short
- Bitcoin fell below $104K on Tuesday morning, down 17.5% from its peak, amid a broad market selloff.
- A DeFi crisis with $284 million in debt and macro fears is influencing investors’ risk appetite, according to analysts.
- The outflow of leverage could reset the market for a more sustainable recovery, analysts told Decrypt.
The cryptocurrency market extended Monday’s losses Tuesday morning as Bitcoin slipped below $104,000, falling to levels not seen since late June.
At the time of publication, the price of Bitcoin is $103,849, down 3.2% on the day, for data from CoinGecko.
The sudden fall results from a combination of a deepening DeFi crisis and persistent macroeconomic fears that have triggered a broad risk movement, analysts said Decrypt.
Bitcoin is now down 17.5% from its record high set in early October. The sell-off is spreading in the main altcoins, with ethereum, XRP, BNBand Solana display 24-hour losses between 5% and 9%.
Crypto liquidations in the last 24 hours have risen to $1.37 billion at the time of writing, for CoinGlass data.
Market sentiment has visibly worsened, with the annual premium of futures on the main exchanges falling from around 7% to below 4% in the past week, according to Veil data, indicating that investors are less willing to pay a premium for bullish bets.
Users reflected the bearish sentiment, as greed fell from 59% on November 1 to 51.9%, according to data from the forecast market Myriadlaunched by Decrypt’s the parent company Dastan. A myriad of users have also turned bearish on the price of Bitcoin, placing a 71% chance of Bitcoin’s next move that will take it to $100,000 instead of $120,000, by 44% on November 3rd.
DeFi “fear of contagion”
The immediate catalyst is a crisis of confidence emanating from the decentralized financial sector, Derek Lim, Head of Research at the firm Caladan, said. Decrypt. DeFi Stream finance protocol disclosed 93 million dollars in losses of assets of the funds on Monday morning, he noted, while “the total debt in the loan markets is estimated at 284 million dollars.”
Lim explained that the situation has raised “contagion fears spreading through DeFi,” with many stablecoins at times facing exposure and forced redemptions.
The analyst pointed to a series of previous problems that have eroded confidence, including the recent $128 million. Balancer exploit and the lingering impact of October historical settlement event
“Confidence was already shot before Stream imploded,” said Lim, adding that “any catalyst is going to amplify the risk-off” in a system that still contains very high amounts of leverage.
“The ongoing crash in the crypto market reflects a risk-off or risk-off sentiment across the market as traders unwind leveraged positions amid macro uncertainty,” said Ryan Lee, Chief Analyst at Bitget. Decrypt.
Lim highlighted weak US employment data, an apparently more dovish Federal Reserve, and renewed uncertainty around the US government shutdown, amplifying the aforementioned domestic crypto issues. “Risk assets are removed in traditional and crypto markets,” he said, with the volatility of the bond market also unsettling investors.
Despite the short-term pain, Bitget’s Lee sees a potential silver lining, suggesting that “this kind of flush-out often resets valuations, paving the way for a stronger and more sustainable rally once liquidity and sentiment stabilize.”
The confluence of these factors suggests that more volatility is likely.
The stabilization path, according to the analyst’s assessment, seems to be aimed at containing the contagion of DeFi and achieving greater clarity on the macro front.
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