Market Wrap: Cryptos, Stocks Tumble Amid Extreme Bearish Sentiment

Selling pressure intensified in both cryptos and stocks on Monday as investors continue to reduce their exposure to speculative assets.

Bitcoin (BTC) dipped toward $30,000 for the first time since July of last year. Technical indicators show support between $27,000 and $30,000, which is the bottom of a year-long price range. Still, negative momentum on the daily, weekly and monthly charts means BTC is at risk of additional breakdowns, similar to what occurred during the 2018 crypto bear market.

Most alternative cryptos (altcoins) underperformed bitcoin on Monday, which typically occurs in a down market. For example, Polkadot's DOT token, Decentraland's MANA token, and Dogecoin's DOGE were all down by more than 17% over the past 24 hours, compared with an 11% drop in BTC over the same period.

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Meanwhile, the S&P 500 reached new lows for the year as tech stocks continued to underperform.

The Chicago Board Options Exchange's CBOE Volatility Index (VIX), a popular measure of the stock market's expectation of volatility based on S&P 500 index options, has been elevated over the past few months, reversing its downtrend from March 2020 highs. That means further price swings are likely, which typically forces traders to hedge against downside risk.

The bitcoin Fear & Greed Index is at the lowest point since January 24, which marked a temporary price low for bitcoin around $32,900.

The index has remained in "extreme fear" territory over the past month as traders grappled with macroeconomic and geopolitical risks. Still, the index can remain in the "fear" zone for a few months before an upside in price occurs. For example, in 2018 the index moved erratically between "fear" and "greed" levels for a full year before BTC's price exited a bear market phase.

For reference, BTC had a peak-to-trough decline of 80% in 2018, compared with its current 50% drop from its all-time high around $69,000 reached in November of last year.

Other market indicators show no signs of capitulation among sellers yet. For example, bitcoin's volume ticked higher over the past 24 hours but remains below its Jan. 24 peak, according to CoinDesk data.

Further, short-term bitcoin holders continue to dominate selling behavior. The volume of BTC selling, however, is not as extreme compared with earlier this year, according to blockchain data reviewed by CryptoQuant.

So far, El Salvador has bought the dip, which previously occurred around major price drops over the past year.

Some analysts expect BTC to eventually stabilize at lower price levels, with some estimating between $24,000 and $27,000.

The chart below shows the average realized price (average cost basis among traders) at $24,300. Historically, realized price levels have marked price lows, which preceded long trading ranges or a strong uptrend in price.

Glassnode data also compares BTC's market price to its realized price (MVRV ratio), which does not signal capitulation. A move toward $24,000, however, could push the MVRV ratio into oversold territory.

From a technical perspective, BTC confirmed a breakdown below $40,000 last week, which could yield an initial downside target toward $27,200, according to Katie Stockton, managing partner at Fairlead Strategies.

Most digital assets in the CoinDesk 20 ended the day lower.

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.