Bitcoin falling sharply as contagion risk engulfs crypto

Bitcoin falling sharply on contagion risk

• Silvergate’s losses driving contagion in crypto: The bank is being shut out from crypto. 
• Bitcoin trades at two-week lows: The price is sharply lower today and has fallen by -5% in two days. 
• Other cryptocurrencies are also falling: Ethereum is also strongly lower.
• Elsewhere, USD is slipping and risk appetite has improved: Dovish comments from FOMC’s Bostic leave the USD underperforming on major forex, with indices ticking higher, although US futures have eased slightly. Commodities have also found support.

Silvergate woes driving another bout of crypto selling 

Silver is a US bank that has positioned itself to be a major player as a lender to crypto companies and exchanges. 

It offers payment networks that facilitate the transfers of US dollar funds within the crypto market.

However, it has suffered significantly from its links to the bankrupted crypto exchange FTX. In January, Silvergate reported losses of -$1bn in its Q4 2022 results.

Concerns are growing within the wider crypto industry over business links to the bank.

Big players within the crypto market such as crypto exchange Coinbase and Galaxy Digital are now pulling out of partnerships with Silvergate. This is leaving the bank to review whether it can continue as a viable business.

If Silvergate goes bust, then there could be significant implications for access to the market and for client funds to be accessed.

The risk of contagion is growing.  

The selling pressure is increasing in crypto again

With these concerns over the implications for the broader crypto industry, there is selling pressure showing on major cryptocurrencies. 

• Bitcoin has fallen in recent days and is now trading at two-week lows. 
• There are similar downside moves on other cryptocurrencies such as Ethereum and Litecoin.

This is now beginning to seriously question the early 2023 recoveries in the cryptocurrency sector.

Technical analysis shows growing downside pressure on cryptos

Bitcoin (BTCUSD)

The price has fallen hard and is retracing the early 2023 rally.

Corrective signals are mounting:

• There is a “bearish divergence” on the daily RSI. This would be a key sell signal if the price now falls below the February higher low.
• The price has fallen below the 55-day moving average for the first time in eight weeks

This means that the support at 21,330 is a crucial technical level. 

If this support is broken it would complete a top pattern and imply a new corrective move. It would suggest a downside target of 18,420.

There is initial resistance at 22,730/23,000. Resistance around 24,000 is now a key lower high.

Ethereum (XETUSD.cr)

Ethereum has also fallen today. Although it is slightly less of a corrective market than Bitcoin, the downside pressure is growing.

The negative divergence in the daily RSI is developing into a key corrective signal.

The near-term support at 1570 has not been decisively broken yet. If it is breached consistently then the pressure will mount on the key February low at 1459.

It would be how Ethereum reacts to that support that will be a defining factor for the medium-term outlook. A breach would complete a top pattern that would imply 1256.

The lower high at 1676 is an increasingly important resistance now, under the 2023 high of 1743.

Support and resistance levels for major markets

Data: MT5/IXOne

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