Crypto's Pre-Halving Dump

Price on Life Support. Bitcoin ran it up to $64.5k overnight before topping out and proceeding to slide throughout Wednesday morning alongside TradFi markets to breach Saturday’s local lows. When will the bleeding stop?

Commencing from the Monday highs, last week’s slide eviscerated $6.6B (19%) of the open interest on BTC futures (primarily from the long end), allowing funding rates on BTC to dip into negative territory for the first time in 2024.

While crypto markets are undeniably healthier from a leverage perspective this week, broader risk markets have ridden a profound wave of bullish momentum since October and this force now appears to be favoring bears. The failure to break out last week combined with the current move lower indicates that a distribution range marking the top may have already formed.

 As inconceivable as $120 SOL would have sounded coming into April when the token was trading at $200, the sudden bearish shift in momentum suggests that crypto markets may have entered a downtrend phase. With Bitcoin’s next major level of support sitting around $50k, crypto majors could easily find themselves trading 20% lower in a nanosecond, likely wreaking havoc on broader alts.

Should BTC make another leg lower, the token would be approximately 30% off its all-time highs; continuation beyond this level would indicate the downturn is more severe than a standard bull market correction. Crypto has found itself heavily reliant on narratives to bolster price action, and while their impact had been positive throughout 2023 and into early 2024, there are early indications of exhaustion.

The Bitcoin Halving, scheduled to occur on April 20, has been cited by many bulls as a catalyst that will positively impact price, but it is important to remember that the magnitude of miner supply reduction will be less impactful than in the past and that BTC is not currently enjoying the post-COVID liquidity flows that it did during the previous Halving.

Moreover, while markets and traders were initially optimistic about the prospects of spot ETH ETF approval, the SEC’s lack of engagement on applications has led many to adopt a negative outlook in recent weeks, leading issuers to prepare for the possibility of a May rejection.