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The top two cryptocurrencies are likely to experience wild price fluctuations as their 30-day realised volatility charts show a dramatic increase.
The current cryptocurrency market scenario is only suitable for traders with a voracious appetite for risk. Analysts, however, advise patience and caution for the faint of heart.
The outlook is bright for Bitcoin (BTC) and Ether (ETH), the top cryptocurrencies by market capitalisation that act as locomotives for the rest of the crypto market. According to Skew data, the ETH/USD Realized Volatility on a 30-day timeframe had reached near its 2017 peak levels as of Wednesday.
Meanwhile, Bybt.com shows Bitcoin’s 30-day volatility at a yearly high, implying that the benchmark asset is still vulnerable to wild price fluctuations in the coming sessions. Simply put, the top two crypto assets are more likely to move in either direction with greater volatility. Overall, this could result in both aggressive gains and losses for daytraders.
Buying in a falling market
The volatility alarm sounds at a time when Bitcoin and Ether have both experienced incredible recovery rallies following recent price declines. In retrospect, the BTC/USD exchange rate fell more than 50% after peaking near $65,000 in April, owing in part to Elon Musk’s anti-Bitcoin tweets and China’s reiteration of its crypto ban last week.
Ether, whose positive correlation efficiency with Bitcoin is currently near 0.88, has trailed the bearish correction in the benchmark digital asset. The market valuation of the second-largest cryptocurrency fell by up to 60% when compared to its all-time high of $4,380 in mid-April.
Bulls, on the other hand, saw opportunities in the price dips, assisting Bitcoin and Ether prices to recover by up to 36.12 percent and 68.52 percent, respectively, from their local price bottoms. Based on supportive macroeconomic catalysts, primarily inflation fears, some analysts predicted that the upside retracement would extend further.
Tech bull Cathie Wood, who heads Ark Investment Management, reiterated her $500,000 Bitcoin price target after last week’s crash, calling the dip “a really great time to buy.”
— Businessweek (@BW) May 19, 2021
Nevertheless, many also cautioned traders against buying during a bearish correction phase, especially after a year-long price rally that increases the risks of profit-taking by long-term investors. Analysts at BiotechValley Insights Consulting Group noted that Bitcoin dropped hard even after the United States Consumer Price Index rose to 4.2%, stating that the crypto market is now going through an “anxiety stage.”
“I believe Bitcoin has a long way to fall from here,” one of the BiotechValley analysts wrote in a note. “I think it will slowly grind down the slope of hope with a periodic dead cat bounce.”
The group called for a $15,000–$16,000 price target for Bitcoin.
Lower risk-appetite? Just wait
Koroush AK, an independent market analyst, took a rather middle approach. He advised traders to wait for a clear bounce above short-term resistance levels before determining their market bias, tweeting:
“After a 60%+ market crash, it’ll take more than a small bounce for me to shift bias back to bull market bullish. Cautious until we capture $45,000 BTC and $3,400 ETH. [I] will be patient here. Don’t need to catch exact bottoms or sell exact tops to make money.”
The recent recovery has coincided with an increase in the number of outstanding Bitcoin Futures contracts from $11 billion to $11.88 billion, demonstrating a steady rise in leveraged positions in the derivatives market. Meanwhile, since the May 19 price crash, more than $12 billion in long positions have been liquidated.