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Home»Bitcoin»Why Bitcoin’s Drop Below $40,000 Sends Mixed Signals for Traders
Bitcoin

Why Bitcoin’s Drop Below $40,000 Sends Mixed Signals for Traders

2024-01-23No Comments3 Mins Read
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  • Bitcoin fell below the critical level of $40,000
  • Despite bearish trends, the market maintains a balanced mix of long and short positions

In a surprising turn of events, Bitcoin (BTC) has seen its value fall below $40,000. This marked a significant drop from the recent high of around $49,000 on January 11, 2024.

Although the $40,000 mark is considered a crucial psychological level for Bitcoin, experts believe that a breach of this level would not necessarily lead to a widespread sell-off. The next support level is expected to be around $38,000.

Increasing market uncertainty

Greek.live took to X (formerly Twitter) to highlight the increase in market uncertainty and expectations of price variability.

Bitcoin fell below $40,000 as short-term IVs recovered. The total VRP (volatility risk premium) has increased and the Skew curve is skewed towards put options.
The above options data reflects the existence of a certain number of short-term panic orders in the market, the market… pic.twitter.com/D5wnuhSWz2

— Greeks.live (@GreeksLive) January 23, 2024

A rising VRP suggests that the options market expects future volatility to be higher than what recent historical data indicates. This can be seen as a sign of uncertainty or risk aversion among investors.

This skew indicates that traders are more concerned about potential downside risks. Short-term orders may be driven by fear of further declines, prompting traders to take quick, protective action.

Reasons behind the demise of Bitcoin

The cryptocurrency market is seeing a general trend of weakness across all digital assets, after a significant increase last year. In fact, Bitcoin’s value increased by approximately approx 160% by 2023.

See also  Bitcoin ETF outflows are increasing again, what does this mean for the BTC price?

This upward trend was largely driven by US expectations Securities and Exchange Commission (SEC) would approve the introduction of spot Bitcoin exchange-traded funds (ETFs).

However, after the SEC’s approval, markets began to withdraw some of these gains. This was influenced by a selling trend in response to the news, which was not enough to offset the profit-taking of speculative traders.

The current market scenario of BTC

At the time of writing, BTC exchanged hands at $39,108. This is the first time since early December that the cryptocurrency has fallen to this price.


is bitcoin a good investment

Source: TradingView

The Relative Strength Index (RSI) registered a reading of 34.18, indicating a potentially undervalued status in the market. At the same time, the Chaikin Money Flow (CMF) stood at -0.02, indicating slightly negative market sentiment.

Looking at the longer time frame (weekly chart), the RSI presented a more bullish outlook at 58.29, although it was trending down. Meanwhile, the CMF stood at 0.16, indicating a moderately positive inflow of money into the market.



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