Bitcoin Bounces Back: Why the 'Rubber Band' Effect Could Spark a Crypto Market Recovery

The Disconnect Grows Wider

The traditional correlation between cryptocurrency markets and equities has fractured dramatically over the past week. While the S&P 500 experienced a modest 1.6% pullback and gold held relatively steady with sub-1% losses, the broader crypto sector plunged over 12% during the identical timeframe. Bitcoin, the market’s leading asset, dipped below the $100k threshold before stabilizing, with prices now hovering around $91.64K.

This widening gap between traditional assets and digital currencies reveals a critical market dynamic that traders and analysts are closely monitoring.

Technical Setup Suggests Reversal Conditions

From a technical perspective, Bitcoin’s current positioning presents an interesting setup for potential recovery. The BTC/USD pair on weekly charts is approaching crucial support levels, particularly around the 50-period Simple Moving Average. According to market technician Aksel Kibar, BTC cannot sustain trading below $98k without compromising the broader bullish narrative that’s been developing over recent months.

This technical floor is important because it protects the midterm uptrend structure and prevents the invalidation of longer-term bullish formations.

The Rubber Band Effect Explained

Santiment’s analysis highlights a phenomenon familiar to crypto markets: the “rubber band” dynamic. When extreme selling pressure accumulates and markets reach oversold conditions—as they have this week—the subsequent recovery often arrives with force.

“This sharp underperformance suggests that crypto markets may have become oversold. Extreme volatility in crypto often leads to a ‘rubber-band’ effect, where traders’ capitulation can lead to a huge bounce-back once selling pressure subsides,” the analytics firm noted.

This bounce mechanism is powered by capitulation trades and short-covering, creating conditions where relief rallies can materialize swiftly once the selling panic subsides.

Fundamentals Remain Intact

Despite near-term weakness, the underlying foundations supporting crypto adoption continue strengthening. Regulatory clarity in major jurisdictions has improved substantially, while institutional demand shows no signs of cooling. These factors, combined with expectations surrounding the Federal Reserve’s potential shift toward monetary easing and quantitative measures, suggest rising global liquidity conditions that typically benefit risk assets like crypto.

The combination of oversold technical conditions and improving macroeconomic tailwinds positions the market for a potential rebound once immediate selling pressure exhausts itself.