In recent weeks, we’ve been discussing how a key technical indicator was showing record-low volatility for bitcoin on the weekly chart. Typically, when volatility contracts, it eventually leads to an expansion in price volatility.

We began to see signs of this price expansion to the downside last week when bitcoin fell by over 6% but managed to barely hold above the critical $60,000 support level.

However, this level was decisively broken this past week, with bitcoin declining another 6% by the close of the trading week. Intra-week, bitcoin was down almost 13% at one point, reaching a low of $53,500 before closing the week at $57,830.

With bitcoin down over 8% in the past two weeks, it’s clear that the expansion of volatility is to the downside. With this week’s closing price, bitcoin is considered in a technical bear market, now being down 25% on a weekly timescale from the $74,000 peak. Given the intense volatility of the crypto market, the definition of a bear market might need adjustment to reflect this space’s unique nature.

Weekly Technical Chart Analysis

Bitcoin has been ranging between $60,000 and $70,000 since late February until now. The weekly candle for this shortened trading week shows a definitive break of the $60,000 level.

Additionally, we have broken below the 21 EMA (exponential moving average, yellow line) for the first time since August 2023.

The 21 EMA is a popular technical indicator used by traders across various asset classes to indicate bearish or bullish trends.

A break below the 21 EMA could suggest further downside, as seen in previous instances when bitcoin broke its 21 EMA. Meanwhile, the 55 EMA (green line) is around $50,000, which could be a potential pull-back target, reflecting bitcoin’s historical patterns. The 55 EMA aligns with the psychological $50,000 support level.

Long Liquidations Expand

Thursday’s and Friday’s mass sell-off to nearly $53,000 triggered the largest amount of forced long liquidations on leveraged exchanges since mid-April, with over $416 million in long positions wiped out on Thursday and another $334 million on Friday.

This totals $750 million in liquidations over two days. Late short-sellers were punished as well, with over $160 million in short positions liquidated after bitcoin bounced from $53,300 to $56,600 to end the trading week.

Fundamental Factors

Beyond the technicals, there may be a couple of fundamental catalysts for the recent price drop. One might be the large-scale selling from Mt. Gox recipients and the German government.

Mt. Gox, the defunct cryptocurrency exchange, has started repaying creditors and former customers, releasing a portion of the nearly 140,000 bitcoin it still holds.

Additionally, the German government has been liquidating seized bitcoin, recently selling up to $175 million worth. These substantial sales have increased selling pressure on the market, perhaps contributing to the negative price movement and breaking key technical support levels.

Divergence In Spot ETF Flows

Interestingly enough, spot bitcoin ETF flows actually had a positive net inflow week, despite the 8% price drop on the week. In aggregate, there were actually close to $311 million in institutional buying of the bitcoin spot ETFs. Most notably, Fidelity’s FBTC fund took on $65 million in fresh capital on Monday, and $117.4 million on Friday. In past weeks since the ETFs launched in January, there has been mostly a positive correlation between ETF flows and actual bitcoin price, and one would’ve expected ETF flows to be negative this week.

The fact that they were well in the positive is very notable, and a glimmer of hope for bitcoin bulls since sentiment has gone down the past couple of weeks. Perhaps larger players are stepping in to buy the dip.

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