Bitcoin finally took a breather this past week after the recent parabolic ascent captured in our Bitcoin Moves blog posts over the past few weeks — here’s why
After peaking at $42,000 late last week, the cryptocurrency fell into the weekend. Bitcoin slipped from those highs to lows of $30,000 on Monday morning, marking a decline of nearly 30%, per OKCoin market data.
The cryptocurrency has since recovered to about $33,500 as of this article’s writing after selling pressure abated at the $30,000 support level.
Altcoins faced a similar descent this past week, with ethereum shedding a similar amount of its value from its highs to its current price.
The correction came amid a number of macroeconomic trends, including but not limited to a slight rebound in the U.S. dollar and a confirmation that Joe Biden will be the next President of the United States.
While bitcoin is well below the local highs, analysts are adamant that the long-term cryptocurrency market trend remains one of growth. For instance, Google Trends data indicates that search interest in terms like “Bitcoin” and “Ethereum” is shooting to the highest they have been since 2017.
TL;DR
- Bitcoin faced a strong correction this past week after peaking at $42,000.
- The cryptocurrency currently trades for $33,500, though fell as low as $30,000 on Monday.
- Analysts attribute the drop to exchanges crashing, a U.S. dollar bounce, and overleveraging on derivatives platforms.
- Bitcoin fell as a Wall Street investor who is long-term bullish on cryptocurrency called for a correction.
- Bitcoin continued to see a spike in retail and institutional interest this past week.
- Mark Cuban likened the cryptocurrency market to the dotcom bubble, though caveated that with the statement that bitcoin and ethereum are highly likely to survive.
Here’s your market snapshot:
All prices are in USD and time zones are PT. Prices are as of 4:00pm PT.
Over-leveraged traders contributed to the decline
A key contributor to the rapid correction on Sunday and Monday was the extremely over-leveraged nature of futures traders.
Prior to the correction, analysts had begun to note that the funding rates of bitcoin futures exchanges were far above the baseline 0.01% per eight hours. This implied that long positions were more over-leveraged than their short counterparts.
When the price began to slide into Sunday, these long position holders were forced to close their positions. Coupled with decreased crypto market liquidity due to it being a weekend, the selling orders cascaded, resulting in the rapid descent to $34,000, then $30,000 by Monday morning.
What was also absent was a lack of institutional buying pressure, which was a large theme of the rally over the past six weeks.
Fortunately, a byproduct of the move is that it largely reset the extreme funding rates seen last week. This gives analysts some peace of mind when it comes to considering what comes next for this market in the near term.
Guggenheim CIO calls for bitcoin correction
While it is unclear whether or not his comments contributed to the decline, Guggenheim Investments CIO Scott Minerd called for a bitcoin correction on Sunday evening. After the initial decline from $42,000 to $35,000, he said:
“Bitcoin’s parabolic rise is unsustainable in the near term. Vulnerable to a setback. The target technical upside of $35,000 has been exceeded. Time to take some money off the table.”
For context, Guggenheim Investments is a Wall Street investment fund that announced in November and December that it sees long-term value in bitcoin. Minerd said to Bloomberg that he thinks BTC will hit $400,000 over time. The investor cited its scarcity and its ability to encroach on gold’s market capitalization.
Guggenheim Investments submitted a Securities and Exchange Commission (SEC) filing that indicated it would allocate up to 10% of a $5 billion fund into bitcoin.
According to economist and market analyst Alex Kruger, Minerd may have had ulterior motives in sending out this tweet. The analyst indicated that Guggenheim is technically not cleared to buy bitcoin until January 31st:
“Guggenheim’s SEC filing to invest in bitcoin via GBTC proposed filing would become effective jan/31. Seems Minard wants to buy $500 million in bitcoin and as price run higher he’s now telling people to take profits.”
This concern was echoed by other market participants, who suggested that Minerd “just wanted a better price entry.”
US dollar bounces despite Biden’s planned stimulus
Even with Republicans taking the lead in Georgia during the November election, Democrats swept the two special elections last week in the state of Georgia. The Senate is now controlled by the Democrats.
The U.S. dollar bounced this past week seemingly in light of Biden’s confirmed presidency, resulting in the bitcoin correction we saw. This is the latest example of the cryptocurrency market showing correlation to macroeconomic trends.
The U.S. dollar is up in spite of Biden’s proposed stimulus plan, which will be larger than the $900 billion bill that went through the branches of government in late December.
According to The Wall Street Journal, the stimulus plan will include “another round of household checks, an extension of enhanced unemployment benefits that are set to expire mid-March, small-business support and, perhaps, more state and local aid.”
Analysts in the cryptocurrency space expect this to drive bitcoin and other digital assets higher due to the fact that such a stimulus would likely drive the U.S. dollar even lower.
Mark Cuban says crypto market similar to dotcom bubble
The billionaire owner of the Dallas Mavericks Mark Cuban commented on bitcoin and ethereum this past week.
Cuban has long talked about bitcoin, though has been mixed in his views on the asset. At times, he said that investors should have up to 10% of their investment portfolios in the cryptocurrency. Though more recently, Cuban said that bananas are more useful to him than bitcoin, though caveated that by saying it is a scarce asset.
His latest opinion appears to be that bitcoin looks extremely similar to the dotcom boom and bust of 2000-2002, which is where Cuban made his first wealth:
“Watching the cryptos trade, it’s EXACTLY like the internet stock bubble. EXACTLY. I think btc, eth, a few others will be analogous to those that were built during the dot-com era, survived the bubble bursting and thrived, like AMZN, EBay, and Priceline. Many won’t.”
Bitcoin ETF chances are likely to improve
In a Bitcoin Moves report a few weeks ago, we reported that Gary Gensler, a former CFTC chairman and a long-time advocate of Bitcoin, was likely going to join the Biden administration in some capacity. Reports indicated that he was going to become a special economic advisor to the incoming President on Wall Street and financial regulation.
This was bullish in and of itself, as getting a pro-cryptocurrency regulator near to the President could result in more reasonable legislation.
Yet in what may be an even more positive news event, the latest reports suggest that Gensler may be the next Securities and Exchange Commission (SEC) commissioner. The SEC lost its commissioner Jay Clayton in December. Clayton was widely seen as anti-crypto innovation.
Jake Chervinsky, who works for Compound, says that this improves the chances that the Bitcoin market gets an exchange-traded fund (ETF) in the coming years. A Bitcoin ETF is expected to drive even more capital into the space than has been seen over recent months.
On-chain trends
According to IntoTheBlock, bitcoin is currently “mostly bearish” as per their seven core metrics, which are based on on-chain trends and market data such as order books.
For the first time in a whale, all of the platform’s seven core metrics are currently “bearish.” These seven metrics span on-chain trends and exchange/order book trends.
Bitcoin’s on-chain signals have been bearish for weeks, seemingly due to the fact that retail investors mostly purchase bitcoin via centralized exchanges and keep their coins there. The exchange signals, though, coincide with the sentiment that there has been an increase in selling pressure from certain players.
CryptoQuant’s Ki Young Ju suggested that both miners and some long-term holders have begun to offload their bitcoin positions, seemingly in anticipation of a drawdown.
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