Extreme Fear Grips Bitcoin as Prices Collapse

Oversold RSI hints at short-term stabilization after sharp selloff.

Bitcoin is in a “falling knife” scenario, with prices tumbling below $60,000 on Thursday, amid a general market aversion towards risky assets. The current leg of the downtrend initially started when Kevin Warsh was nominated by President Trump as the next Fed Chair.

Warsh currently supports lower rates but is widely viewed as a hawk, which means he would not go as low as other potential candidates would. A tight monetary policy is bearish for risky assets such as cryptocurrencies, so the markets are currently pricing in this assessment.

The recent fall brought Bitcoin to the level it was when Donald Trump won the presidential election back in November 2024. The initial promise to make America the crypto capital of the world sparked a huge rally, which culminated with the All-Time High (ATH) at $126,272.

Since then, the adoption of cryptocurrency into mainstream finance has stalled, and market sentiment is decaying. The CoinMarketCap Fear and Greed Index sits at 11, which is “extreme fear” territory, and Bitcoin lost more than 20% in the last 7 days alone.

On top of this, institutional interest has dwindled, with spot Bitcoin ETFs bleeding hundreds of millions per day. On Wednesday, February 4, the cumulative outflows surpassed $544 million, according to Coinglass data.

Chart Analysis – BTC/USD

Bitcoin dipped below critical support levels and even below the previous All-Time High at $69K (November 2021), reaching levels mentioned only in the darkest predictions. After such a massive drop, a relief rally could be triggered by the extreme oversold condition indicated by the Relative Strength Index (RSI).

The Daily RSI reached a low at 18.6, which signals an oversold Bitcoin, with bounces due to happen. The Weekly RSI reached 28, which is not extreme but still below the 30 level, and thus, is considered oversold as well.

The previous consolidation zone is located between $73K and $53K (March 2024 – October 2024). This is where Bitcoin may find some support, and considering that it already entered the zone, we won’t have to wait long to see whether a bounce happens or not.

The previous support zone around $77K will potentially turn into resistance, and a good place for a bounce to happen is the previously broken bearish trend line. However, without a proper catalyst (such as the crypto market structure bill), the downtrend will be difficult to reverse.