Bitcoin Drops 54% in 35 Days. Is The Bull Market Over?
The entire cryptocurrency market cap shed billions today in what will be remembered as one of the most dreadful days in bitcoin’s history. More so, today’s events bring into question whether this bull market has come to a grinding halt, and also serve to remind us why we are here.
Let’s dig in.
Grayscale Assets Under Management Drop to $41 bn
The total value of Grayscale’s digital assets under management (AUM) have dropped over $11 billion since May 13, down to $41.27 bn in total.
The latest correction in the crypto market has resulted in a sizeable dip in Grayscale’s digital assets under management (AUM). The company now has $41.27 billion worth of crypto AUM, down from $53.1 billion on Mary 13 2021.
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Crypto Market Rolls Over
Everyone who held bitcoin today deserves a medal, a badge of honour. Bitcoin dropped 32% today, and 54% in 35 days, completely rolling over in a matter of hours to levels not seen since early January ($29,480). This unprecedented level of selling resulted in a cascading liquidation event reminiscent of black Thursday in March 2020, liquidating $2 billion worth of bitcoin longs alone.
The slump is also larger than the intermittent sell-offs typical of the 2017 bull market (35%-45%), and brings into question whether bitcoin will recover to all time highs this year.
At the end of the carnage, BTC/USD was able to find support on the .618 fib level at $29,480, recovering to $37,100 at the time of writing. Once the dust settles and dire sentiment clears, a reversion to the mean is within the realm of probability.
Mean reversions are normal even if a trend has changed. In this case, the 20-weekly EMA ($45,800 at the time of writing) is the mid-term indicator that will provide technical insight into what lies ahead on the balance of probabilities. As noted in the previous newsletter, all eyes are on the weekly close.
Net Unrealised Profit/Loss Signals Potential Local Bottom
One clue as to whether bitcoin is ready for a bear market is the net unrealised profit/loss indicator.
Net Unrealized Profit/Loss is the difference between Relative Unrealised Profit and Relative Unrealised Loss. This metric can also be calculated by subtracting realised cap from market cap, and dividing the result by the market cap. In prior bull runs, bitcoin remained in a macro bullish trend as long as it traversed within the 0.5–0.7 region, showing signs of major over-heating above 0.8.
At this stage, this on-chain indicator suggests that BTC/USD hasn’t reached the cycle top yet, despite the dramatic events which just transpired.
Long-Term Holders Buy The Big Dipper
Meanwhile the bitcoin balance on exchanges has started to tick higher, indicating that ‘hodlers’ are beginning to offload coins on the open market. While this is typically a bad sign, data from Glassnode shows that short term holders (recent participants) are the ones currently off-loading coins at a loss, straight into the hands of longer term buyers.
The trend provides insight as to whether the pull back is part of a larger time-frame bull cycle as weak hands (new participants) capitulate and stronger hands recommence their accumulation of cheaper coins. So far, the demand hasn’t offset this flood of fresh supply, but long-term buyers (wallets) are quickly stepping in.
This thesis of panic selling can also be observed when one zooms in on BTC exchange inflows, which hit a significant high comparable to the covid sell-of in March 2020.
Overall, exchange inflows hit $32,724 BTC, and likely contributed to the latest leg down of the correction. Meanwhile, longer-term buyers are reacting in almost perfect opposition to panic sellers.
An Engineered Crisis?
While signs of a local bottom are strong, bitcoin is nevertheless hovering close to bear-market-territory as outside events seemingly come out of nowhere. Indeed, current price-action coincides with a whole slew of events which beg the question: was the panic engineered? Normally, I’d say blaming the news is a coping mechanism, but it’s worth noting these events nonetheless, all of which came precisely at the wrong moment (or right time depending on which side you’re on).
- May 13: Elon Musk says bitcoin energy use is ‘insane’ and recycled news about a Binance investigation from the Justice Department and IRS make the rounds.
- May 18: China ‘bans’ financial payment platforms from using cryptocurrencies in their business (also recycled news).
These observations have no bearing on bitcoin’s fundamentals, but serve as a reminder that everyone uses the tools they have when playing this game.
Not a one way street
Finally, a word of advice. Bitcoin and cryptocurrencies are not a one way street up into infinity. Even if you’ve come in for the right reasons, it’s easy to forget that bitcoin is still a relatively small market (less than $1 trillion) and is fighting an uphill struggle against the entire global financial system.
So what are the right reasons?
Bitcoin is a technology that represents an idea that until its inception was lost to the history books. It is a stoic, uncompromising force imbued in technology, and it is the men and women who share those values with absolute conviction who have brought bitcoin this far. If you got into crypto during the recent frenzy, I’d encourage you to learn about the bitcoin mission, which is the best shot humanity has at forging a better tomorrow.
In closing, I’ll direct you to this article, which is as true now as when it was written a year ago.
Stay safe and stay healthy.
Catch you next time.
Read More: The investment case for Bitcoin in 2021
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Originally published at https://mailchi.mp.