The market correction that many crypto analysts have been predicting for weeks seems to have finally arrived.
Indeed, crypto markets are seeing red across the board: Bitcoin (BTC) was down 15.2 percent at press time, sitting at 46,779.18. Less than one hour before, BTC had fallen has low as $46,931.4. Ether (ETH) had fallen a whopping 19.57 percent at press time, sitting at $1,464.38. Even Binance Coin (BNB), which has been posting high gains throughout the past week, had fallen 20.8 percent to $208.
Binance chief executive Changpeng Zhao was quick to point out that while the drop may have been signficant, the levels that markets have fallen to were “new all-time highs” just last week. “#bitcoin crashed, back to its ATH 5 days ago, at $50,000,” he wrote on Twitter.
#bitcoin crashed, back to its ATH 5 days ago, at $50,000.
— CZ 🔶 Binance (@cz_binance) February 23, 2021
Altcoin and DeFi markets have also been affected by the drop: XRP, Litecoin (LTC), Chainlink (LINK), Stellar Lumens (XLM), Dogecoin (DOGE), Uniswap (UNI) had also seen drops of more than 20 percent (or even 30 percent) over the last 24 hour period.
Still, while the drops are significant, some analysts believe that they will be short-lived. Pseudonymous trader and analyst @Rekt_Capital wrote on Twitter that “one day, a #BTC Bear Market will come. But today is not that day.”
One day, a #BTC Bear Market will come
But today is not that day#Bitcoin
— Rekt Capital (@rektcapital) February 23, 2021
Of course, what goes up must come down–and crypto markets have been performing incredibly for weeks. What finally triggered the sell-off? How low will crypto markets go? And what does this mean for the long term?
Worst-case scenario? Bitcoin could drop as low as $30,000
Paolo Ardoino, chief technical officer at cryptocurrency exchange Bitfinex, explained that the price drops are not necessarily signs of fundamental problems within the cryptocurrency market space. “today’s drop [seems] to be a correction in BTC,” he said.
How low will Bitcoin go? Of course, it’s impossible to predict the future. However, Michaël van de Poppe, Full Time Trader from Amsterdam Stock Exchang, tweeted on Monday morning that “I think we’re close now.”
“Resistance zone at $48,500 and $51,000,” he wrote.
Approaching bounce region for #Bitcoin.
I think we’re close now.
Resistance zone at $48,500 and $51,000. pic.twitter.com/ctsLwLpVFD
— Michaël van de Poppe (@CryptoMichNL) February 23, 2021
But further drops could be in the cards for BTC. David Lifchitz, chief information officer at quantitative trading firm ExoAlpha, told CoinDesk that “$50,000 looks like the first stop for a mild pullback, but a second leg down could take it down to $40,000, while the $30,000 zone looks like the ultimate bottom should things turn ugly in the short term.”
Bitcoin market analyst Willy Woo wrote on Sunday that “This is the $1T consolidation level. Let’s just enjoy the view and not freak out, this moment will be fleeting.”
This is the $1T consolidation level.
Let’s just enjoy the view and not freak out, this moment will be fleeting.
— Willy Woo (@woonomic) February 21, 2021
“We had clear signs of over-leverage and exuberance in the system.”
While it’s unclear how deep the drop will be, many analysts agree that the drop was not unexpected. In a statement shared with Finance Magnates, Delta Exchange chief executive Pankaj Balani told Finance Magnates that there have been signs that the market was overbought for weeks.
“Throughout the last week, we have seen traders chasing laggards,” Balani told Finance Magnates, adding that Bitcoin and Ether weren’t the only coins affected by this upward trend: “there was a sharp pick-up in altcoin trading activity as markets looked for upsides outside of Bitcoin and Ether.”
Indeed, “we had clear signs of over-leverage and exuberance in the system,” Balani told Finance Magnates.
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Did Elon Musk cause the Bitcoin drop?
What may have triggered prices to fall? A number of analysts believe that it may have something to do with one Mr. Elon Musk.
“Commentary from Elon Musk seems to have acted as the straw that broke the camel’s back and triggered the due correction,” Balani said.
Indeed, on Saturday, Musk tweeted that “BTC & ETH do seem high lol” in response to a conversation thread between himself and Bitcoin bear Peter Schiff. Musk had previously said that Bitcoin was a “less dumb” alternative to fiat money.
That said, BTC & ETH do seem high lol
— Elon Musk (@elonmusk) February 20, 2021
Janet Yellen, Bill Gates express doubt about Bitcoin’s future
The tweet may not be so significant in the grand scheme of things, but Musk’s recent fixation on DogeCoin combined with Tesla’s $1.5 billion purchase of Bitcoin had the crypto world riding on every one of his words: after Musk repeatedly expressed interest in DogeCoin, DOGE had an eye-popping rally. Tesla’s BTC investment is largely credited as the event that sent Bitcoin over $50,000 for the first time.
(And this isn’t the first time that Musk’s Tweets have significantly impacted the price of an asset in a negative way, either. In May of 2020, Musk tweeted that “Tesla stock price is too high imo,” a move that immediately sent Tesla’s stock price ($TSLA) hurtling toward the ground.
Tesla stock price is too high imo
— Elon Musk (@elonmusk) May 1, 2020
Elon Musk wasn’t the only one to poke at Bitcoin this week. Bloomberg pointed out that negative comments about BTC also came from United States Treasury Secretary Janet Yellen and Microsoft co-founder Bill Gates.
Yellen, who has criticized Bitcoin in the past, recently said that Bitcoin is a very “inefficient” way of conducting transactions. Gates spoke about how BTC investors can easily be swept up in manias, and said that he is “not bullish on Bitcoin.”
Whether or not Elon Musk, Janet Yellen, or Bill Gates had anything to do with Bitcoin’s recent drops, however, BTC investors seem to have decided that now is the right moment to move out of the market.
Pankaj Balani explained that on Delta Exchange, “we have seen profit-taking on Bitcoin longs that came in around the $30K-$35K zone.”
“Institutions are buying all your #bitcoin right now.”
While some investors may be profit taking, crypto bulls are warning that other investors may be buying up their holdings for cheap. “Institutions are buying all your #bitcoin right now,” Tweeted Dennis Parker, an FX analyst who also works in Bitcoin research and development.
Institutions are buying all your #bitcoin right now.
— Dennis Parker (@Xentagz) February 23, 2021
Still, there could be more volatility to come: Pankaj Balani believes that while “some leverage has been cleared,” there will still be some fluctuations before it’s possibile that Bitcoin and Ether will regain their previous highs. “The volatility should persist for a few sessions followed by a consolidation in BTC and ETH prices before the next move up,” he said.
”Volatility isn’t new and is to be expected in such a young market.”
Still, Bitcoin “skeptics” are convinced that Bitcoin’s current volatility is a sign of a deeper problem within the market itself–a problem that will not be fixed by the passage of time.
Nader Naeimi, head of dynamic markets at AMP Capital Investors in Sydney, told Bloomberg that Bitcoin is “a pure[ly] speculative asset.”
However, a number of crypto industry veterans seem to believe that the drops–while they are significant–are simply par for the crypto course.
Bitfinex’s Paolo Ardoino said that today’s sea of red is no reason to panic–in fact, it’s nothing out of the ordinary.
“For many of the battle-tested exchanges that have weathered the market fluctuations, volatility isn’t new and is to be expected in such a young market,” he said. “For many in the industry, development and deployment is priority. Price movements are more of a sideshow.”
As such, “we may be seeing some price fluctuations that can be expected in a nascent space,” Ardoin continued, adding that “today’s price movement may galvanize bitcoin’s many critics, including those who recently dismissed the leading cryptocurrency as an economic sideshow. Such criticism misses the point and the profound impact it is starting to have.”
“We believe the ongoing demand for Bitcoin from corporates and investors has helped support prices despite USD strength.”
Finance Magnates also previously reported that in spite of the drops, Bitcoin’s cash inflows this month have been sizeable. In a report published by CoinShares on Monday, investment strategist James Butterfill also pointed out that Bitcoin has seen record-breaking amounts of cash inflows in spite of “minor profit-taking.”
“Digital asset investment products saw inflows totalling US$492m last week. Although, breaching both the US$50k Bitcoin price and a market capitalisation of US$1 trillion has led to minor profit taking, as witnessed before when significant psychological milestones have been reached,” he wrote.
And, while some believe that Bitcoin is nothing more than a speculative asset, Butterfill pointed out that Bitcoin is gaining strength from institutional demand, even as its status as a “store-of-value” or “hedge against inflation” is “tested.”
Butterfill pointed out that this relationship is still being explored: “this year, the inverse relationship between the US Dollar (USD) and Bitcoin has been tested, as recent better than expected US economic data has led to more USD resilience,” he said. “We believe the ongoing demand for Bitcoin from corporates and investors has helped support prices despite USD strength.”