The price of Bitcoin seems to be on the road to recovery after a short-term correction brought BTC down from a new all-time high of nearly $42,000 to a low of $31,150, which is a drop of more than 25 percent.
However, as many Bitcoin bulls predicted, the dip seems to have been short-lived: at press time, BTC had regained levels up to $36,000 and appeared to be continuously moving upward.
Indeed, Tegan Kline, Business Lead at The Graph, told Finance Magnates that she would not call yesterday’s price drop a “crash.” Instead, “I would call it a correction,” she said.
Jeffrey Wang, Head of the Americas at Amber Group, explained to Finance Magnates that “the move past $40K was swift without any significant pullback, and I think now we’re seeing more people taking profits adding to the price pressure.”
“Expect there to be good support at the $30K level,” he added, “as buying on dips has been a consistent message we’ve heard from the market.”
“This Overbuying Was Driven by Speculation.”
What brought BTC up so high in the first place?
Amber Kline believes that the reason for the correction “is that we saw overbuying in Bitcoin and Ethereum.”
“This overbuying was driven by speculations as opposed to understanding the need and the technology,” she explained.
Amit Gami, Founder of Card Payment Guru, also told Finance Magnates that “presently, there are many new investors coming in to purchase Bitcoin and Ether on the recommendation of others.”
After all, “Bitcoin is a global market with very little barriers to entry for purchasing when compared to stocks for example,” Gami said. Therefore, he believes that “no institutions would ever buy close to the all-time high,” and that therefore, retail investors are “likely the reason why we have seen this downturn.”
FOMO Rally?
Indeed, it seems that a significant portion of the rally that brought Bitcoin past the $40K point can be attributed to retail investors who, as in 2017, may have been experiencing a bit of FOMO (fear of missing out).
EVERYONE was buying #Bitcoin at $41,000 because of FOMO now at $35,000 no one dares to because “it’s gonna go lower”
This dip is healthy, it’s what we need. Just follow your strategy and don’t follow emotions
— Bitcoin Liz⚡️ (@LizBitcoin) January 11, 2021
A ‘CME gap’ refers to a phenomenon in which Bitcoin markets make a sharp, sudden move outside of regular trading hours for CME’s Bitcoin futures markets, which results in a literal hole or ‘gap’ in Bitcoin price charts.
Often, but not always, when this happens, the Bitcoin price will eventually fall back to the level where the gap was formed. This retrace in the price of Bitcoin ‘fills’ the gap.
Therefore, because the gap is around the $23,500 zone, some analysts believe that Bitcoin is headed at least that low before a meaningful return to $40K+ territory is possible.
Worst-Case Scenario?
However, the word on the street among many Bitcoin analysts is that Bitcoin is such a hot commodity that the gap may remain ’empty’ and that Bitcoin may simply move on without a more significant price drop.
While somewhat unusual, there have been instances of CME gaps going unfilled in the past. For example, one such gap formed around the $9,700 mark in early November of 2020.
At the time, renowned cryptocurrency analyst, Willy Woo tweeted that “I’d say there’s a fair chance this CME gap may not get filled, so far it’s been front-run for liquidity. Every dip snapped up.” And, bygone it, he was right.
Perhaps this is why Alex Lebed, Head of Development at xSigma DeFi, believes that levels around $23,000 would only be a “worst-case scenario.”
“We’ve reached support,” Lebed told Finance Magnates. “Further support in case of the worst case, is around $23,000 for Bitcoin.”
However, “Even in this case, altcoins should rally,” he said. “Yesterday’s crash is a bullish continuum pattern. It’s negligible after a 4x rise. We’re still bullish above the 20-week Simple Moving Average (SMA), which is around $23K.”
