Fear runs deep in the crypto market as major cryptocurrencies re-test critical support levels. On December 3^rd, Bitcoin’s price wicked into the lows at $40,000 resulting in a record number of liquidated positions across exchange platforms.

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At the time of writing, almost every cryptocurrency, but Bitcoin in the top 10 by market cap seems to show signs of recovery. The benchmark crypto trades at barely north of $50,000 after it was rejected at $51,500 with small losses in the past 24-hours.

BTC moving sideways in the 4-hour chart. Source: BTCUSD Tradingview

Data from Arcane Research shows that the Fear and Greed Index has been fluctuating with the price of large crypto by market cap. During the last week, this metric stood in the “Fear” levels right up until Friday’s crash when it dipped further into “Extreme Fear”.

Although the metric was able to bounce from a low at 16 it now scores a 25 in the metric, almost 50 points less than in November when it stood at Greed with 73. The index is still close to its yearly lows, and closer to post-May 2021 levels when an increase in selling pressure slumped the prices of every major crypto.

These levels remained at their lows from that moment until mid-August, when Bitcoin finally broke above $40,000 and into an all-time high at $69,000. Arcane Research noted the following:

(…) panic spread across the market following the weekend sell-off. We haven’t seen such a fearful market in almost four months. The market sentiment bounced off the lows on Tuesday as the market recovered strongly, but we are still in the “fear” area (…).

A “Fear and Greed” Index on Extreme Fear levels, according to certain analysts, has historically preceded crypto market local bottoms. However, a run into new highs could see an obstacle as the macro-economic outlook turn complex.

The Crypto Market At Risk For Macro Factors?

QCP Capital believes the selloff was caused by fear of the new COVID-19 variant, Omicron, inflation concerns, weakness in the Chinese stock market, and the possibility that the U.S. FED begins to taper its asset purchasing program.

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The Chinese crypto market, in particular, holds concerns. This has translated into persistent negative funding rates across exchanges platforms. QCP Capital claimed:

This indicates persistent selling out of China. In contrast, funding rates in other exchanges normalised very quickly (…). With the persistent negative funding in Chinese exchanges, we reckon a push higher in spot could actually trigger a short-squeeze.

The crypto market already shows signs of this short squeeze, but it could face more downside due to the aforementioned macroeconomic factors.