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Following a bullish surge that began in late October 2020, Bitcoin experienced a major reversal yesterday, which caught the market off guard. Although the market has been screaming for a correction for several weeks, when it actually happened, the emotional turmoil was palpable. A massive $6.86 billion in long positions is liquidated, causing widespread hysteria.
Many speculators drew parallels between the recent drop and the March 2020 collapse, but the figures do not support this. The March 2020 5-day meltdown was worth an excess of 47 percent, while the current capitulation was worth 26.5 percent.
Although we cannot escape the current bearish mood, it is important that we examine the market critically.
Ethereum and Alts took a greater tumble; Why?
The overall price correlation between Bitcoin and the rest of the market was lowest in 2021. Several altcoins began to rally on their own. Much outperformed Bitcoin, but it should come as no surprise that BTC’s collapse was met with a massive altcoin splat.
Ethereum reached an all-time high of $4,375 a week ago, but it dropped to $1,880 at one point yesterday. Cardano, Binance Coin, XRP, and other cryptocurrencies saw similar movements. However, at the time of publication, the duration of the downturn was likely due to a change in Bitcoin’s market domination.
After months of losing ground, Bitcoin regained the upper hand over other properties yesterday. The current turnaround would also be dependent on Bitcoin’s trajectory, which would result in a larger downturn in liquidity for altcoins. Once again, Bitcoin will be the driving force behind a massive price push.
Bitcoin’s playing field has changed since March 2020
While many believe the bull market is over, Phillip Gradwell, Chainalysis’ Chief Economist, believes the stakes are far higher for investors now than they would be in March 2020. Gradwell predicted that the volume of BTC carried in May 2021 would be considerably higher than in March 2020 based on an analysis of the current cost curve. Since March 2020, over $410 billion in BTC investments have been made, and there is already more opportunity to overcome the existing market price structure than to sell and liquidate their holdings.
Furthermore, he mentioned that the selling pressure has been more retail-oriented, as institutions may have already purchased the dip, and Bitcoin inflows into exchanges have been comparatively poor in comparison to previous sell-offs.
Are we completely over the hump though?
The fast rebound from $30,000 has restored some hope over the last day. However, Bitcoin is not entirely blameless, since the latest boom may be a case of Dead Cat Bounce. A Dead Cat bounce is a trading condition in which the price briefly breaks up before going on another downward wave.
The rejection by the 50-period Moving Average is one of the key narratives promoting this path. As seen in the map, Bitcoin has been retracing down from the 50-MA for the past week. As a result, a dead cat bounce scenario might see Bitcoin re-visit $35,000 before pushing back up.
A sustained rebound of more than $42,200 over the next 24-48 hours will be a bullish validation. This will render the bearish short-term framework ineffective, and the stock could resume its ascent to higher peaks.