VYSYN Ventures Weekly Insights #47 – How Bitcoin market dynamics have shifted since a 14% hourly Bitcoin decline
After recording a record high of close to $65k, Bitcoin began retracing. So far in 2021, retracements have quickly found buyer liquidity, pushing price back up and sustaining bullish momentum. However, this retracement was different.
The retracement evolved into price virtually entering freefall. Bitcoin price gradually retraced until the 18th of April when BTC declined from ~$59k to a low of below $51k over the course of an hour. This catalyzed the largest long-side liquidation of 2021 with $9.26 billion being wiped from the derivatives market.
Bitcoin has since returned to under $50k. The anticipations of speculators are beginning to split with some foreseeing the recent price movements as the early stages of a bear market. Others maintain the view that Bitcoin remains in a bullish trend.
In the latest VYSYN release, we break down the recent decline and highlight some of the fundamental developments that may have contributed to the movements. We also consider how the BTC price may unfold from here.
Detailing Bitcoin’s Dump
After gradually retracing from an all-time-high, a flood of selling pressure hit the market shortly after price returned below $60k. $60k has been highlighted as a significant level for market participants and the decline below catalyzed significant selling pressure accompanied by bid orders evaporating.
What unfolded was the largest hourly Bitcoin drop this year. The 14% open-to-low decline catalyzed a significant $9.23 billion worth of long-side liquidations in the derivatives market, wiping out a huge wave of speculators.
While it is difficult to tie fundamental developments directly to Bitcoin price movements, there have been several recent developments that may have had an impact. A major power outage in the Chinese province of Xinjiang caused a significant hashrate drop. While hashrate follows price, a significant and sudden drop can be perceived as a less secure network and may have spurred some speculators to sell.
A rumor also surfaced that the United States Treasury department may accuse and possibly clamp down on some financial institutions for using digital assets to launder money. These dual developments may have played a role in the Bitcoin price dump. Xinjiang miners have since started mining again.
Bitcoin Price Prospects
Bitcoin has since found strong buyer liquidity close to and beneath the $50k. How this will play out remains uncertain. Continued trading around $50k will diminish the buyer liquidity and increase the odds of another significant sell-off following. A quick and strong recovery from $50k will increase the odds that Bitcoin can sustain its bullish trend. Continued trading close to $50k increases the odds that we are in the beginning phases of a bearish trend.
A New Paradigm for Bitcoin Bear Markets?
If a bear market does follow the recent price movements and developments, it will likely be distinct from bear markets of the past. In previous market cycles, a large share of Bitcoin market liquidity was attributable to retail investors. However, over the past year, corporations and publicly-traded investment funds have radically increased their share of the Bitcoin market.
The presence of these investors makes the Bitcoin market less susceptible to significant declines in price. When retail investors comprised the majority of the market, the odds that a news development would spark widespread selling was much higher. However, corporations and publicly-traded investment funds are structured towards long-term holding. Erratic selling is impossible for them and any selling that they do carry out will be executed according to corporate practices.
Bitcoin Market Dynamics Significantly Adjust
At this stage, it’s impossible to discern whether Bitcoin will sustain its upward trend or whether a bear trend will ensue. However, we can clarify one point. The 14% hourly drop on April 18th significantly changed the Bitcoin market dynamics. The odds of a bear market ensuing increased significantly. Bitcoin formed a lower low on the weekly chart and the bulls and bears began fighting over the $50k level whereas they previously competed over $60k.
Fundamental developments like the Xinjiang hashrate drop and the US Treasury rumors may have played a role in the decline but their overall impact also remains unclear. Price may have simply overextended itself and spurred significant selling pressure to enter the market. The drop below $60k on the 18th of April certainly played a role in the decline and sparked an onslaught of selling pressure.
Bitcoin is the bellwether of the entire cryptocurrency industry and its developments reverberate across the entire market. Everything including altcoins, tokens, and both public and private company performance is impacted by the price movements of Bitcoin. We will be closely monitoring how Bitcoin market conditions unfold from here and updating our community through both Telegram and Twitter.