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Bitcoin and other cryptocurrencies suffered a harsh reversal on Wednesday as signs showed that Kamala Harris defeated Trump in the debate and as core inflation rose gradually. Bitcoin moved to a low of $55,900, down from this week’s high of $58,110.
Bitcoin’s sell-off triggered more crash among other cryptocurrencies. Popcat token plunged by over 10% to $0.5485 while Dogwifhat (WIF), Notcoin (NOT), and Render Token (RNDR) fell by almost 10%.
Bitcoin forms a death cross
The reason why we believe that Bitcoin has moved into uncharted territories is that the coin is about to form a death cross pattern as the spread between the 50-day and 200-day Exponential Moving Averages (EMA) narrows.
It has moved from about 8% in August to less than 0.5%, meaning that a further decline will trigger a death cross chart pattern.
History shows that Bitcoin tends to drop sharply after forming a death cross pattern. In 2022, the coin formed the cross leading to a 60% decline.
That decline, however, was an exception because it happened as the Federal Reserve hiked interest rates to counter the surging inflation. It also happened in the same year when Terra and its ecosystem, FTX, Celsius, and Voyager Digital collapsed.
The most recent example of a 200-day and 50-day crossover is what happened in October last year when it formed a golden cross pattern. This pattern led to a big jump, with the coin soaring from $28,000 to a record high of over $73,800.
Therefore, there is an increasing risk that Bitcoin may be on the verge of a strong bearish breakout in the coming months. If this happens, the coin may drop to as low as $40,000.
If this happens, many altcoins will continue plunging in the near term. In the past, bear markets last for a few years, as we saw in the last crypto winter.
Bitcoin chart by TradingView
Smart money stablecoin holdings
The other big risk that Bitcoin and other cryptocurrencies are facing is that stablecoin holdings among smart money investors has been falling, and is showing signs of bottoming.
As shown above, data by Nansen shows that stablecoin holdings jumped sharply between the end of 2021 and peaked at 2022. The initial peak happened around June as Terra and its ecosystem imploded while the second one was when FTX imploded.
Smart money stablecoin holdings then entered a deep bear market and is now showing signs of bottoming. Therefore, this is a sign that, stablecoin holdings may start rising again as investors become more risk averse. If this happens, Bitcoin may continue falling, bringing other altcoins down with it.
Kamala Harris odds of beating Trump rose
The other key catalyst for the ongoing Bitcoin sell-off is the rising odds that Kamala Harris may beat Donald Trump after Tuesday’s debate.
Most analysts believe that Harris won the debate, which explains why crypto tokens themed to Trump crashed. MAGA, Trumpcoin, and Maga Hat crashed by over 20% and were among the worst performers in the market.
At the same time, as I have warned severally, the Trump Media and Technology (DJT) stock continued falling. It reached a record low of $16, meaning that it has plunged by over 38% in the last month and 63% in the last three months. It could continue falling ahead of the lockup expiry later this month.
In most cases, Trump-themed tokens do well when there are hopes that he will win the election. Polymarket odds moved in her favor, with a 50% ratio.
However, historically, cryptocurrency prices tend to do well regardless of who is US president. Bitcoin surged to a record high during Biden’s term, where Gary Gensler has not been all that friendly to the industry.
Federal Reserve actions
Bitcoin and other altcoins retreated after the latest US inflation data, which came in line with analysts estimates.
According to the Bureau of Labor Statistics (BLS), the headline Consumer Price Index (CPI) dropped for the fourth consecutive month to 2.5%. The CPI index rose from $314.54 in July to $314.80.
However, the main catalyst for the sell-off was the core CPI, which remained at 3.2% and rose to 0.3%, higher than the expected 0.2%.
These numbers mean that the Fed will likely start cutting interest rates in the coming meeting on Thursday. While this is a bullish factor for coins, there are signs that it has been priced in by market participants.
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