We're In For A Bumpy Ride With Bitcoin Reaching Its Peak

The value of BitcoinBTCUSD -0.12% and other cryptocurrencies remained stable on Tuesday while the digital asset market was in turmoil due to Silvergate Capital SI -1.85%. Cryptocurrencies may have reached their short-term peak, and volatility is expected, according to market dynamics.

‍

Throughout the previous 24 hours, the bitcoin price has remained stable at about $22,375. The greatest digital asset is still up by roughly one-third in 2023 thanks to its early-year gain, but Bitcoin has already dropped below its recent peak of $25,000. The $23,000 to $24,000 area, which had reigned for all of February, was also decisively thrown in the rearview by a severe selloff this week, wiping out optimistic investors who were relying on Bitcoin's recovery into a fresh bull market after a terrible 2022.

‍

Distress at a powerful bank, Silvergate (ticker: SI), which has been crucial in tying corporate crypto market participants together and facilitating liquidity, is to blame for the most recent leg south.

‍

Silvergate disclosed last week that company was in financial trouble, posting significant losses as a result of having to sell property at a significant cost in order to maintain liquidity during a run on the banks. The bank stated that it has been assessing Silvergate's ability to stay in business. The potential collapse of Silvergate has damaged market liquidity, the price of cryptocurrencies, and raised the possibility of regulatory action.

‍

According to Craig Erlam, an analyst at broker Oanda, "Bitcoin has been consolidating after Friday's selloff, with traders clearly wary of further ripple effects but still prepared to hang on for the time being just in case. "Events late this week served as a sharp reminder of the difficulties the sector is currently facing and the results of those difficulties."

‍

Technically speaking, current crypto market dynamics imply that Bitcoin's greatest days may be behind it for the time being and that it may be a rough road ahead. 

‍

One alarming hint emerged as Bitcoin and Ether—by far the second big digital assets—fell on Friday by far more in terms of percentage that other cryptos. This "has traditionally only happened at local price peaks," according to analysts at cryptocurrency exchange Bitfinex. The researchers also noted that both realised and implied volatility indices had risen over the previous ten days. As these are trailing signals, it is likely that prices may see more volatility in the near future.

‍

The Bitfinex experts stated, "At least for the upcoming week, the general picture is one of increasing volatility, with short-term tight range where price could ping-pong aggressively among levels. In the past, range following a decline like this has indicated that a short-term top for Bitcoin may have already formed or is in the process of doing so.

‍

In the upcoming week, there will probably be some macroeconomic news that will cause some of that volatility. Due to a challenging macroeconomic background of high inflation and rising interest rates, cryptocurrencies continue to be associated with stocks and are expected to trade in lockstep with the Dow Jones Industrial Average and S&P 500.

‍

Investors are anticipating this week's congressional testimony by Federal Reserve Chairman Jerome Powell, Friday's employment report, and next Tuesday's consumer price index inflation data as major turning points.

‍

The second-largest cryptocurrency after Bitcoin was hovering around $1,560. A more mixed performance was seen in the smaller cryptos or altcoins, with Cardano falling 1% and PolygonMATICUSD +1.34% shooting up 3%. Memecoins saw a more subdued performance, with both Dogecoin and Shiba InuSHIBUSD -2.24% posting gains of less than 1%.