Bitcoin falls into "Extreme Fear" dilemma: technical and popularity decline simultaneously, when will rebound signals appear?

The Path of Crash from 126K to 87K

Last month, after hitting a record high of over $126,000, Bitcoin rapidly declined to around $87,720 in just over a month, a drop of 28%. This sustained selling pressure not only wiped out all of BTC’s gains this year but also severely dampened the enthusiasm across the entire crypto market.

During Tuesday’s trading, Bitcoin briefly fell below the psychological level of $90,000, hitting a recent low. Behind this decline are factors such as the cooling of expectations for Fed rate cuts and ongoing tightening of global liquidity.

Technical “Triple Kill” Warning Signs

Bitcoin currently shows three concerning technical signals for traders:

First is the “Death Cross” becoming a reality. Last week, Bitcoin’s 50-day moving average officially crossed below the 200-day moving average. This classic bearish signal often indicates the start of a long-term downtrend. Historical review shows that in the past 13 years, every time Bitcoin broke below the 50-week moving average during a bull cycle, the trend ended, followed by significant price declines within 1-2 years.

Second is the RSI indicator issuing an “oversold” warning. The 14-day Relative Strength Index (RSI) dropped below 30, which generally suggests that the downward momentum is extremely oversold in technical terms, potentially leading to a short-term technical rebound or consolidation. However, it’s important to note that RSI oversold does not mean an imminent reversal—many experienced traders see it as a sign of a strong bearish atmosphere rather than a signal of a turnaround.

Third is the continuous breach of support levels. Bitcoin has already broken through key psychological levels such as $100,000 and $95,000, and is now testing support at $90,000 and lower. Traders should closely watch whether the price can form bullish reversal patterns like a doji or other candlestick formations at current levels to confirm whether selling pressure is truly waning.

Market Sentiment Shifts from Optimism to “Extreme Fear”

Kevin Kelly, portfolio manager at Amplify ETF’s crypto products, admits that since Bitcoin failed to hold the $100,000 psychological level, the market has entered an “extreme fear” phase.

But it’s worth noting that this fear is fundamentally different from the crypto winter of 2018. Back then, the market experienced a typical winter pattern of “everyone giving up, 70%-80% price drops, trading volume disappearing, and interest waning.” Today, Frontier Investments CEO Louis LaValle believes we are not in a winter but witnessing the “maturity of the Bitcoin market”—holding and trading methods are changing, and market structure is transforming.

Divergence Between Institutions and Retail Investors

On-chain data reveals an interesting phenomenon: during this decline, retail and institutional behaviors have diverged significantly.

Julio Moreno, head of research at CryptoQuant, points out that the annual holdings of US spot ETFs have slowed from 441,000 BTC on October 10 to 271,000 BTC today, indicating a clear weakening of demand from US investors. Meanwhile, the average order size in the spot Bitcoin market also reflects that retail traders are not bottom-fishing at this time.

Conversely, crypto whales are quietly accumulating at low prices. CryptoQuant data shows that investors selling Bitcoin are still taking profits, with no signs of panic selling or margin calls, suggesting the market has not yet reached an extreme.

Options Market Reveals Trader Sentiment

Options traders are reflecting their pessimistic outlook through position setups. Recently, market activity has concentrated on put options with strike prices of $85,000 and $80,000, indicating traders are preparing for deeper declines.

Last week, Bitcoin’s decline exceeded 9%, intensifying market fear. The sell-off in early October triggered over $19 billion in liquidations, wiping out more than $1 trillion in token market cap, and the crypto market still struggles to regain full confidence.

Macro Background and Support Logic

Despite short-term bearish sentiment, the long-term macro logic supporting Bitcoin remains unchanged. Frank Holmes, co-founder of HIVE Digital Technologies, states that the macro environment is “structurally shifting to be more favorable for Bitcoin and gold”—excessive government spending and ongoing monetary expansion provide long-term support for these scarce assets.

Even with slowing new user growth and short-term popularity, structural trends such as rising debt levels, monetary expansion, and geopolitical fragmentation continue to favor decentralized assets.

Rebound Signals and Trading Strategies

Although RSI has signaled oversold conditions, the key is whether price action can confirm this signal. Traders should watch for bullish reversal patterns like a doji or long lower shadow candlestick, and volume-price confirmation at key support levels—these are the real indicators of whether a bottom is forming.

Historical reference from late February shows that when RSI similarly dropped below 30 and Bitcoin traded below $80,000, the decline slowed, and a bottom was formed around $75,000 in early April. If history repeats, traders should closely monitor similar bottoming processes.

According to Dow Jones market data, the average decline in a typical Bitcoin bear market since 2014 is about 30.8%. This recent drop has not exceeded that average, and in 2022, there were two bear markets with declines over 45%. In comparison, the current correction is not particularly extreme.

Short-term Risks and Long-term Opportunities

Global liquidity tightening is a major reason for Bitcoin’s weakness. Over the past two years, central banks have withdrawn easing policies, the Fed has delayed rate cuts, and the US Treasury’s general account has caused temporary liquidity crunches, all increasing Bitcoin’s sensitivity to macro conditions.

But as Kevin Kelly notes, every time the market enters an “extreme fear zone,” it often presents a good opportunity to allocate to Bitcoin. Even long-term investors can gradually increase their holdings through dollar-cost averaging over the next quarter, spreading risk and lowering average costs.

Bitcoin has now fallen to around $87,720, a significant discount from its all-time high. If it can establish stable support near $90,000 and show positive technical reversal signals, the next rally could be on the horizon.