Bitcoin hits six-month low near $95,000; analysts optimistic for bullish turn

Bitcoin dropped to a six-month low over the weekend mainly due to tightening liquidity, but analysts remain optimistic about a potential reversal.

According to The Block's crypto price page , bitcoin traded at a low of around $93,000 earlier on Sunday but has since recovered to about $95,285 at the time of writing. This price level was the lowest bitcoin has seen since early May.

The crypto market saw $619 million worth of total liquidations in the past 24 hours, with $243 million coming from bitcoin, Coinglass data shows. The crypto Fear Greed Index fell to 10, signaling "extreme fear" in the market.

"In my opinion, the primary market driver remains liquidity," said Derek Lim, research lead at Caladan. "Liquidity is (and will be) temporarily tight as the U.S. government shutdown has kept the treasury general account elevated."

Lim told The Block that he expects this headwind to reverse in the near term as government spending resumes and delayed payments are processed, re-injecting liquidity into the system. The analyst also pointed out that Japan's 17 trillion yen ($110 billion) stimulus package, currently under consideration, may further boost global liquidity in the future.

MHC Digital Group Head of Markets Edward Carroll also pointed to mounting liquidity stress building under the surface.

"Treasury bill spreads, repo markets and other funding indicators are flashing signs reminiscent of late 2018 and 2019," Carroll said. "Crypto, being more reactive, has adjusted sooner than traditional markets."

This liquidity strain boosted the already bearish sentiment formed around the reduced likelihood of another interest rate cut in December. This combo has led $1.1 billion to move out from U.S. spot bitcoin exchange-traded funds last week, worsening the price action for the world's largest cryptocurrency.

Still, Carroll shared the view that crypto's mid-term outlook is constructive, citing bitcoin's evolving role as a battle-tested digital gold, expectations for a liquidity rebound and continued institutional involvement.

"The bottom line is this pullback reflects tight funding conditions and shifting rate expectations, not a break in crypto fundamentals," Carroll said. "Once the liquidity cycle turns, we expect digital assets to rebound first, just as they have after every major intervention over the past decade."

Key Levels

As bitcoin is testing support at around $94,000, the critical floor for the cryptocurrency is at $88,000 to $91,000, BTC Markets Crypto Analyst Rachael Lucas said. 

"Technically, this puts us in a bear market, but context matters, the last cycle saw a 55% drawdown before a run-up to a cycle high in November 2021," Lucas said. "We're likely at the tail end of this bear phase, yet the macro backdrop is very different: the U.S. government has reopened, interest rate cuts are pending, and the Fed is set to end quantitative tightening in December."

Caladan's Lim said experts are now closely watching the 50-week simple moving average, which currently sits at around $103,000.

"A weekly close below this level is a widely-accepted bearish signal," Lim said. However, the analyst said a single weekly close below this level is not a definitive signal: "The key question is not just if it breaks, but if it stays below."

Altcoins 

Meanwhile, altcoins traded down over the weekend. Ethereum is changing hands at $3,144, down 13.4% in the past week, while XRP is at $2.23, down 7.7% in the same period. Solana dropped 17% in the last seven days, trading at $138.7.

"Altcoins historically require two ingredients to thrive: excess liquidity and euphoric sentiment," Lim said. "Neither is currently present."

The Caladan analyst said "altcoin season" is unlikely to emerge without a meaningful improvement in liquidity and sentiment.