Bitcoin Correction | Should You Be Worried?
Soon after clearing the clouds and topping a market cap of $1 trillion in late February, Bitcoin saw a nosedive in share price. This appears to be the long-awaited correction. This pullback was the conclusion of a massive rally for Bitcoin, beginning last October, and concluding with new ATHs over $58,000. The sentiment surrounding BTC has been relatively positive so you may be wondering why this occurred.
In the traditional financial realm, investors were focused on increasing U.S. government bond yields. Bond yields have been getting “realer.” Yields on 30-year TIPS (bonds) just went positive for the first time since June.
You are probably asking yourself the question, why is this significant? To put it simply, long-term real interest rates can act as a proxy for economic growth expectations. Markets may be coming to the realization that growth potential is there. Rising yields could lead to bonds becoming more attractive to foreign investment, pushing the US dollar higher, and increasing selling pressure on riskier assets like Bitcoin and stocks. Cryptocurrency does not operate in a vacuum.
Bitcoins Market liquidity, a market’s capability to buy and sell assets easily and quickly, is still much smaller than gold or the S&P 500. Relatively small flows, like Square’s recent 3,318 bitcoin purchase, can produce a dramatic price impact, especially considering Bitcoins falling market liquidity. In addition to traditional market macro force hypotheses, sentiment-driven hypotheses have also saturated the web.
Elon Musk is no stranger to Twitter as he famously, or infamously, continues to move the needle both positively and negatively whenever he unsheathes his Twitter fingers. In a recent tweet, he quipped, “that said, BTC & ETH do seem high lol,” with the market crash following two days later. Bitcoins price continued to rise for two days until it began to plummet, declining until the following Monday, 2 days later. It may be rash to draw bold lines to this relationship.
Elon is not a lone figure in the sentiment-driven crash thesis. Bill Gates and Treasury Secretary Janet Yellen both stirred the pot with negative comments regarding Bitcoin, pointing out its use of energy and inefficiencies as a means of exchange. These words could have been the catalyst for a long-overdue correction.
Of course, there are plenty of critics who seek to debunk the concept of BTC’s lofty energy drainage.
Whether it be sentiment-driven fluctuations, institutional investment, or legislation, Bitcoin continues to impress with its wild volatility. Probit Exchange has tools available so YOU can capitalize on these swings.
Probit Bituniverse Grid Trading allows users to place multiple buy and sell orders for a trading pair. When the price of the token drops, the buy orders are transacted. When the price of the token increases, the sell orders are transacted. When a buy order is executed, the bot automatically adds a sell order and vice versa. Probit’s grid trading protocol enables traders to automatically and effortlessly buy low and sell high.
Up And To The Right
Corrections are like a spider under your bed. You know it’s there and that you will likely meet again, but have no idea when it will next reveal its hairy frame. You may lose sleep over that spider but shouldn’t over speculation of a correction.
Corrections are a decline of 10 percent or greater in the price of an asset, security, or financial market. They can span anywhere from days to months, or years. While often alarming and damaging in the short-term, a correction can be healthy, cooling down overvalued, hot asset prices, creating buying opportunities. Predicting the start, end, and severity of a correction is impossible but a market analysis deep-dive can reveal signs a correction is imminent.
It’s Not Clairvoyance
Corrections can often be predicted using technical analysis, even in the crypto realm. Technical analysts will study price support and resistance levels to better predict when a reversal may morph into a correction. Analysts will use financial tools like Bollinger Bands, trendlines, and envelope channels, and study other metrics like investor emotions and volume. Utilizing these tools, analysts can get a general idea of when or if a correction will occur.
Prior to a market correction, stock or cryptocurrencies may be very strong and arguably overperforming. During the correction, assets frequently perform poorly, allowing traders to buy the dip. However, tread with caution, as you could see a further decline following your purchase. Protecting your portfolio during these bouts with a declining market can be difficult but doable. In comes grid trading.
Utilizing the grid trading feature, traders can set stop-loss orders or stop-limit orders, effectively dealing with declining equity prices. Enabling automatic buy and sell orders when prices are falling.
Buy, Sell, Hold? What Should I Do?
In the traditional financial realm, corrections have historically hit certain equities the hardest. Smaller-cap, high growth stocks, more specifically in the tech sector, will most often see the most volatility, AKA Bitcoin and other cryptocurrencies.
Ultimately, what YOU should do in a correction comes back to your risk tolerance and outlook. Ask yourself the following questions:
- If you purchase shares in the midst of a rapid decline, can you stomach a continued downward trajectory for days, weeks, or months?
- If you are attempting to capitalize on price swings with a short-term investment strategy using leverage, are you comfortable with the potential of both huge profits but also huge losses?
In the event you smell a correction on the horizon and are a long-term holder of a token with a belief in its protocol, having some dry powder on the side to capitalize on plunging token prices could be an effective way to build up your long-term position.
At the end of the day, market corrections can be scary and challenging for amateur traders. It’s important to remember they are healthy for both markets and investors. For the market, it enables a recalibration of asset valuations that may have been overinflated by hot hands and for investors offers discount asset prices and invaluable learning opportunities regarding market instability.
So the next time you are riding a wild bull run, don’t be surprised when prices start going South just as fast as they went North.
