Bitcoin (BTC), the world’s leading cryptocurrency, created a shock in the market. Because it experienced a significant price drop and entered a period of turbulence. After surging to a two-year high above $49,000 in mid-January in anticipation of spot exchange-traded fund (ETF) approvals in the US, the crypto asset fell below the $39,000 level, erasing almost all of its recent gains.
There is a decline for Bitcoin
This pullback represents one of the most significant declines in the current bull market cycle and highlights the inherent volatility of this asset class. Historical data shows that such corrections can reach up to 30%, underscoring the significant risk-reward profile associated with crypto asset investments. The recent price drop has triggered widespread liquidations in the crypto market, with some sources estimating losses to exceed $330 million in the last 24 hours. While Bitcoin itself constituted approximately $90 million of these liquidations, $77 million came from long positions. This suggests that traders betting on further price increases are being hit particularly hard.
What’s behind the decline?
- GMMA: The Guppy Multiple Moving Average (GMMA) indicator, which is effective in determining trend changes, is on the verge of showing a downward trend. This suggests that market momentum is shifting towards a downtrend, potentially triggering further selling pressure.
- “Selling the news”: The much-anticipated approval of spot Bitcoin ETFs in the US, which initially fueled the rally, may have resulted in a “sell the news” event. This phenomenon often sees investors withdraw their money following a major positive development, leading to a price correction.
- FTX sale: The ongoing sale of Grayscale’s GBTC shares by the FTX bankruptcy estate is putting additional selling pressure on the market. This asset liquidation is estimated to have reached approximately 22 million shares in recent weeks.
What do analysts say?
Analysts are divided on the future course of Bitcoin. Some, like 10X Research, are predicting a drop to at least $38,000 based on technical analysis. Others, like CryptoQuant, take a more bearish view and predict a drop to $32,000. While the current downturn is concerning, it is important to remember that Bitcoin has historically exhibited periods of high volatility. We’ll see if this is a temporary setback or the beginning of a longer-lasting correction. Investors should closely monitor market developments and adjust their strategies accordingly, exercise caution and apply sound risk management principles.
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