Pros say Bitcoin’s ‘very healthy’ correction ‘builds ground for more stable growth’

Published at: April 23, 2021

Bitcoin and the wider cryptocurrency market took a beating in the late ho April 22, and intense selling saw (BTC) price dip below $48,000 in a move that came as a relief to quantitative analysts like PlanB who were worried that the price growth was showing signs of being inorganic. 

A variety of factors have been identified as being the cause of the drop in price, including an overcrowded futures market and heavy selling activity from small- to medium-size whales. Aside from the activity of whales in the crypto market, the most impactful development was a proposal from the administration of United States President Joe Biden to raise the capital gains tax for individuals making more than $1 million per year.

Data from Cointelegraph Markets and TradingView shows that a heavy wave of selling led to a break below the $50,000 support level for Bitcoin on April 23, dropping the price to a low of $47,500 before a few courageous buyers arrived to lift it back above $49,000.

The breakdown below $50,000 marks a 25% drawdown from the recent all-time high and now has Bitcoin trading at levels last seen in early March.

Bitcoin inflows to exchanges preceeded the downturn

When asked about April 22's price action, Micah Spruill, managing partner and chief investment officer at S2F Capital, indicated that the sell-off “appears to be an attempt to pin the price below the key $50,000 level where a significant number of put options would expire in the money.”

Spruill noted that “bearish net inflows of BTC transfers to exchanges” were the likely catalyst that “drove us down to the next level of on-chain support around $47,500,” and also highlighted the fact that “Most of the coins moved on-chain during this most recent selloff were recently acquired coins and not long term holder coins.”

According to Élie Le Rest, partner at digital asset management firm ExoAlpha, being able to hold the current price level “would confirm the accumulation pattern by institutional investors at or below $50,000, leaving room to grow for Bitcoin in the coming weeks/months.”

If the price should fall further, Le Rest identified $43,000 as the next strong support level, and he highlighted the fact that altcoins really began to “flourish” the last time BTC traded in this range in February.

Le Rest said that “getting back to this level may trigger a strong downside for the altcoin market as they would have lost all of their recent gains,” potentially leading to a rise in Bitcoin dominance back above 60%.

Le Rest said:

“Either way, this kind of market pullback is very healthy as it contributes to deleveraging market participants and builds ground for a more stable growth.”

Traders rush to the exits

To help better understand the rapid sell-off in the price of Bitcoin, Jarvis Labs co-founder Ben Lilly offered an analogy that alluded to traders acting like passengers on a boat to help describe what happened as a “spontaneous synchronization.”

Lilly said:

“When a boat starts to tip, a few people lean first. The more it leans, the more people also lean. Then bam, it tips…”

Lilly pointed to several opportunities that traders used to make money off this downturn including “selling the altcoin euphoria” as well as profiting from the futures carry trade. He also highlighted the fact that capital was being used to short, not to buy, in these instances.

As an indication of how rapidly the market sold off and the degree to which it caught even institutional traders by surprise, Whalemap, an on-chain analytics firm, posted the following tweet highlighting the significance of the $55,000 level.

55k should have been the bottom. 263 thousand bitcoins inflowed to whale wallets at that price. In the future, it could be a trouble area for BTC. But let's see what happens. Currently, we are at support. pic.twitter.com/Ooo20xlYzq

— whalemap (@whale_map) April 23, 2021

As for what analysts think about buying BTC below $50,000, Whalemap posted the following chart and said: 

“Hourly moving losses are higher than profits. Historically that was a good buying opportunity.”

The market now anxiously awaits the next major move in Bitcoin's price to help determine if this is merely an overdue correction that will lead to a continuation of the bull market or the opening salvo of the next bear market cycle.

Altcoin prices collapse

Bitcoin’s drawdown hit the altcoin market especially hard, resulting in double-digit losses for a majority of the top 100 tokens.

Ether (ETH), the top altcoin by market capitalization, was pummeled and at the time of writing trades more than 12% away from its April 22 all-time high of $2,640. Meanwhile, XRP and DOGE have been the hardest-hit tokens in the top 10, with their prices falling more than 20%.

Three notable exceptions to the current sell-off include Compound's COMP, WAVES and Helium's HNT, which managed to overcome the selling by posting gains of 13%, 9% and 8%, res at the time of writing.

The overall cryptocurrency market cap now stands at $1.862 trillion, and Bitcoin’s dominance rate is 50.7%.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk, andyou should conduct your own research when making a decision.

Tags
Related Posts
Bitcoin price rally to $61,800 shows BTC bulls are in full control
On March 13 bulls took full control of the crypto market as Bitcoin (BTC) price vaulted to a new all-time high at $61,844 after a high volume surge pushed the price through overhead resistance near $58,000. Analysts had spent the week calling for an eventual move above the $60,000 level and social metrics showed bullish sentiment for Bitcoin continued to increase as a number of companies and institutional investors announced plans to make BTC purchases. Bitcoin now finds itself in the realm of price discovery as there is limited data available from a technical analysis standpoint to determine where the …
Blockchain / March 14, 2021
Altcoins sell-off after Bitcoin price rejects near its $58K all-time high
Optimism continues to percolate in the cryptocurrency sector on as recent gains in Bitcoin (BTC) have helped push the valuation of the top-ranked cryptocurrency past that of the South Korean won. Data from Cointelegraph Markets and TradingView shows that the price of Bitcoin experienced a wave of selling in the early hours that pushed the price to a low of $54,948 before bulls returned to briefly push the price back above $57,000. Regardless of Bitcoin price action, institutional investors have consistently expressed their interest in BTC. Today, MicroStrategy announced that it had purchased another 262 BTC at an average price …
Blockchain / March 12, 2021
Bitcoin and altcoins correct after Yellen’s ‘illicit financing’ critique
On Tuesday, Ether (ETH) underwent a bullish breakout which propelled the price to a new all-time high at $1,428. While the move may have been technical, the fundamentals for Etheruem continue to improve as less than one month after launch there is now $3.8 billion worth of ETH locked on the Eth2 blockchain. The rapid rise in price has clearly attracted the attention of pro traders but Cointelegraph analyst Marcel Pechman warns that Ether’s rise to a new high was also accompanied by a large increase in short positions. Ether’s break to a new high had little effect on Bitcoin …
Bitcoin / Jan. 19, 2021
Bullish ETH/BTC pair revives the Ethereum 'flippening’ discussion
Bitcoin and the overall cryptocurrency market saw minor losses on April 29 as the market heads into the expiry of $4.2 billion worth of (BTC) options contracts. Data from Cointelegraph Markets and TradingView shows that since reaching a high above $56,400 on April 28, the price of Bitcoin has dropped more than 6% back down near the $53,000 support level while Ethereum (ETH) continues to trade above $2,700. Despite the lull in market activity, signs of mainstream cryptocurrency integration continue to emerge on a near-daily basis. Earlier today Coinbase announced that users can now purchase up to $25,000 worth of …
Bitcoin / April 29, 2021
20% drop in the S&P 500 puts stocks in a bear market, Bitcoin and altcoins follow
Whoever coined the phrase “sell in May and go away” had brilliant insight, and the performance of crypto and stock markets over the past three weeks has shown that the expression still rings true. May 20 has seen a pan selloff across all asset classes, leaving traders with few options to escape the carnage as inflation concerns and rising interest rates continue to dominate the headlines. Data from Cointelegraph Markets Pro and TradingView shows that the price of Bitcoin (BTC) taking on water below $29,000, and traders worry that losing this level will ensure a visit to the low $20,000s …
Bitcoin / May 20, 2022