End of the correction in bitcoin? The crypto market seeks ground after weeks of turbulence

The November air has brought an unexpected respite to the world of cryptocurrencies. After a month of vertigo and massive liquidations, bitcoin is moving around $100,000 and some analysts are beginning to wonder if the market has finally found a bottom. The image of the ‘crypto winter’ that dominated the headlines in October is beginning to be nuanced with signs of a certain stabilization and a new tone of caution among investors.

The collapse of decentralized finance platforms like Balancerdoubts about the US monetary policy and the rise of the dollar had frozen the momentum that led bitcoin to exceed 125$,000 at the beginning of October.

The adjustment movement was rapid and severe, with losses close to 20%, and more than $1.7 billion liquidated in leveraged positions, according to data from CoinGlass. It was a purge that emptied excess risk and left many traders off the board.

Today, however, the landscape is beginning to be different. Various market reports suggest that the most aggressive sales have stopped. Bitcoin, XRP and yesOlana They try to chain several sessions of moderate advances and analysts observe a gradual return of stability after the falls of October.

Another report from J.P. Morgan points out that, after ‘deleveraging’, bitcoin It is “mechanically cheap” compared to gold. The strategist Nikolaos Panigirtzoglou states: “L“The relationship between open interest in perpetual futures and market capitalization has returned to its 2024 average level, a sign of normalization after weeks of tension”.

Liquidity problems

In the traditional market there is also a certain containment. The pressure on stock markets and speculative assets came from a much broader front. The United States is going through a partial government shutdown that has disrupted Treasury liquidity flows.

Part of the public funds remains retained in the account that the Treasury maintains at the Federal Reserve (Fed), which has drained liquidity from the system. This movement coincided with the reduction of central bank’s own balance sheet and amplified the cash drought in money markets.

The effects were immediate. The spread between repo and federal funds rates, a key measure of liquidity stress, reached the 0,3%, its highest level since 2019. When that gap exceeds 0.1, it is usually considered a sign of stress.

In the short term, this rigidity has limited appetite for risk assets and dragged down technology indices and bitcoin itself. Nevertheless, the market expects the Fed to act to stabilize bank reserves and inject liquidity in the coming weeks, which would relieve pressure on markets.

On the other hand, the ten-year US bond yield remains contained below 4.10%. As long as that reference remains under control, the liquidity shortage could be temporary. The precedent of 2019 hangs over the memory of operators and the general expectation is that, once the federal government reopens and the Treasury releases arrears of payments, the flow of money into the economy will resume its normal course.

These macroeconomic dynamics are fundamental to understanding why bitcoin could be approaching an inflection point. During the last months, the correlation between the cryptocurrency and the Nasdaq index has strengthenedsuggesting that global liquidity movements directly impact digital assets. When money becomes more expensive and the dollar gains strength, cryptocurrencies tend to lose traction. But if the rate cycle moderates or liquidity returns to the system, behavior can quickly reverse.

The fear is still present

The Fear and Greed Index of the crypto market score 24 points according to CoinMarketCap. That means it is in ‘extreme fear’ levels and a reading that, historically it has coincided with soil zones. The last time a similar value was recorded was in April, just before a rebound in the 60% which took bitcoin to its all-time highs.

simon Peters, analyst eTororemember that the asset has experienced falls of 30% on other occasions within a bullish trend wider and considers that current prices could reflect a break before the next stage of consolidation.

Meanwhile, Technical analysts are monitoring the $100,000 level as a critical zone. At the moment, the price is mnine around that level despite having also lost it during the last few days with a more moderate volatility.