Potential Bitcoin Price Crash to $42,000: Key Factors to Monitor
A significant drop in Bitcoin price occurred on Friday following reports that the Mt. Gox exchange had initiated payments to its creditors, prompting investors to close their long positions and leading to increased liquidations across the market.
The downward pressure extended to alternative cryptocurrencies, with Ethereum falling below $3,000, Solana dropping under $135, and XRP plummeting to $0.4 as the market turned predominantly red, causing the total market capitalization to dip to $2 trillion. If the selling trend persists, altcoins could experience further losses, with Ethereum potentially retesting the $2,500 support level.
Despite the decline, Bitcoin managed to temporarily hold above $50,000, thanks to support at $55,000. However, on some exchanges, the daily candle wick reached as low as $53,545 before rebounding to trade at $56,430. CoinGecko data reflected a 2.6% decrease in the past 24 hours, accompanied by a notable 38% surge in trading volume to $55 billion.
The recent sell-off in Bitcoin was partly triggered by Mt. Gox’s announcement of commencing payments to creditors in Bitcoin and Bitcoin Cash starting July 5 through selected exchanges, as confirmed by the Rehabilitation Trustee. This news, along with reports of a substantial Bitcoin transfer by Mt. Gox, further heightened fears among traders, resulting in intensified sell-side pressure on BTC and key support levels being tested.
Additionally, heightened selling activities were observed as the German government sold a significant amount of Bitcoin, with reports indicating that Germany and the US collectively transferred 17,788 BTC worth approximately $1.08 billion to exchanges since June 19. The total holdings of Bitcoin by the US, Germany, and Mt. Gox were reported to be 213,297 BTC, 42,226 BTC, and 141,687 BTC, respectively.
Looking ahead, market volatility is expected to persist if the selling pressure continues. The technical analysis suggests a bearish short-term trend for Bitcoin, with a potential further decline to $42,000 following the confirmation of a double-top pattern and breach of the neckline support at $58,222. Traders are inclined to increase short positions below the 200-day Exponential Moving Average (EMA), supported by a sell signal from the Moving Average Convergence Divergence (MACD) indicator.
A daily close below the 200-day EMA level would reinforce the bearish sentiment, with the double-top pattern indicating a breakdown target of $42,000. However, a reversal scenario could unfold if buy orders increase at current price levels, with $55,000 acting as a crucial support level for a potential trend reversal above $60,000 in the near term.
