Bitcoin price took a plunge in the last two hours. After briefly touching $19,500, just a small step away from its ATH, bitcoin crashed to $16,350, a decline of about 15%. The flash crash swept away near $2 bullion-worth long positions across three major crypto exchanges.
The overheated market quickly cooled off after the crash. The fear & greed index of Bitcoin traders stood at 93 yesterday, now it has dropped to 86.
Last week, several analysts warned about the possibility of significant corrections when the market was singing bullish.
There are two major reasons for the plunge. The first is the selling pressure at $19,000 as whales deemed it a nice place to take profit. The second one being the excess leveraged positions across major exchanges. In the past few weeks, the funding rate for holding long positions has been exceptionally high, at a multi-month high of 0.098%, which indicated that the market was overleveraged and buyers faced increasing pressure in holding their long positions.
Additionally, unfavorable news has some investors worried. Rumor has it that the US Treasury Secretary Steven Mnuchin plans to introduce tighter rules for private wallets, which requires users to go through the KYC process. Ray Dalio, the founder and co-chairman of Bridgewater Associates, expressed concerns for bitcoin’s limited user cases and continued volatility. He also commented that the government could ban it someday.
While the market has cooled down somewhat, many remain positive that the largest cryptocurrency by market value could touch $20K in the next few months, if not weeks. Analysts pointed out that investors continue to buy in bitcoin to hedge against inflation, while the 2017 rally was initiated by retail investors. Joel Kruger, a currency strategist at LMAX Exchange shares his views:“We don’t think the pullback is reflective of any distressing fundamentals, rather, we see the move as a well overdue correction in the aftermath of an explosive run.”
Before reaching $20K, there are still some hurdles for bitcoin to cross. According to Philip Swift, the creator of Lookintobitcoin.com, the Golden Ratio Multiplier indicator signals the $16,000 and $13,000 are the key support levels. If bitcoin fails to break cleanly from $16K, it could revisit $13K and start the whole climb again.
How to earn profits from the ups and downs?
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