Bitcoin Drops to $31,000 as Traders Brace for 'Bumpy' Road and More Downside

“When it rains, it rains (it rains)” is an old adage that found new relevance in the cryptocurrency market on May 9, as traders faced another day of pain as the current price drop puts the bitcoin Bitcoin (BTC) to the lowest level in 2022.

Bitcoin’s sell-off intensified on May 9 as the session progressed, with bitcoin hitting a daily low of $31,000 as bulls scrambled to shore up their defenses, data from Cointelegraph Markets Pro and TradingView showed.

Here are some of the developments that led to the price drop on May 9, and what traders can look for as the cryptocurrency market moves further into a bear market.

Further declines are possible

Over the past few months, Bitcoin bulls have struggled to establish a solid support level as the bears have been persistently pushing the price lower.

Currently, BTC prices are down 50% from their all-time highs in November, and on-chain analytics firm Glassnode noted in a recent report that the decline “remains modest compared to the final lows of previous Bitcoin bear markets.” ".

As the chart above shows, the July 2021 decline peaked at -54.2%, while the "2015, 2018, and March 2020 bear markets saw all-time highs of -77.2% to lows of -85.5%".

Network profitability has also declined to levels similar to those seen in late 2018 and during the 2019-2020 bear market.

Glassnode says,

“It should be noted that both of these scenarios preceded the eventual capitulation event. As such, further declines remain at risk and within the bounds of historical cycle performance.”

Traders are adopting a risk-off strategy

A deep dive into on-chain data shows capitulation among Bitcoin holders has intensified in recent weeks as prices have continued to move lower.

Evidence of this capitulation can be found in Bitcoin transaction fee dominance, which measures what percentage of fees are paid on the Bitcoin network to deposit BTC on exchanges.

According to Glassnode, Bitcoin’s transaction fee dominance suddenly spiked to 15.2%, the second-highest level in history, and “further supports the case for Bitcoin investors looking to de-risk, sell and/or increase margin in response .to deal with market volatility.”

Additional evidence of rising risk aversion can be found when looking at stablecoin supply. Since the market sell-off in March 2020, the stablecoin supply has increased from $5.33 billion to $158.25 billion, but has declined over the past two months.

After peaking at $161.53 billion in early April, the total stablecoin supply fell by $3.285 billion as USDC redemptions outpaced all stablecoin token inflows.

Glassnode says,

"Overall, there are a number of net signs of weakness in the sector, many of which suggest that risk aversion remains at the heart of the market for now."

Likelihood of staying above $30,000

The recent weakness across the market has led many crypto traders to turn bearish and accept the possibility of a drop to $28,000, which has begun to stir contrarian views among some analysts, including futures trader Peter Brandt, who tweeted Cope with emotions.

What happens next for Bitcoin remains to be seen, but it’s best to brace for greater volatility as macro global events continue to weigh on financial markets.

Glassnode says,

"Bitcoin remains highly correlated with broader economic conditions, suggesting that unfortunately the road ahead may be bumpy, at least for now."

The total market capitalization of cryptocurrencies is currently $1.467 trillion, with Bitcoin dominance at 41.7%.