BTC Experiences Its First Major Pull-Back Since Rally Began

January 12, 2021 02:47 PM
Crypto and Bitcoin Market Cap Story of Day

Crypto and Bitcoin Market Cap Story of Day




Bitcoin (BTC) has found support overnight and is consolidating around USD 35,000, while ETH is back above USD 1,000. The balance of the Top 10 is mixed with BTC/USD volume on Bitfinex exceeding USD 1.3 billion.

Crypto Story of the Day

After trading to new all-time highs above USD 40,000 On Sunday, BTC experienced a sharp 16% correction, touching as low as roughly USD 30,600. The move represents the first major pull-back for the coin since its price broke above USD 20,000 in December and coincides with several bearish takes from traditional market participants.

BTC broke decisively beyond 20,000 on December 16 for the first time in its history. It would take it just over 3 weeks to double that record, with current all-time highs sitting in the range of USD 42,000.

The drawdown was by far BTC’s most significant correction since the breakout. Historically, BTC rallies have been marked by sharp pull-backs. For example, in the leadup to December 2017 record highs, BTC saw a 30% drop from USD 17,000 to USD 13,000. In May 2019, as BTC emerged from a protracted bear market, the coin saw a 24-hour drop of 18% before going on to reach multi-year highs of about USD 13.7k in June. 

This week, just before midnight on Sunday as the up-move gained steam, Scott Minerd, Guggenheim Investments CIO tweeted: “Bitcoin's parabolic rise is unsustainable in the near term. Vulnerable to a setback. The target technical upside of $35,000 has been exceeded. Time to take some money off the table.” On Monday, Jeffrey Gundlach, CEO of DoubleLine Capital, said BTC looks to be “now sort of in bubble territory in terms of the way it’s been acting.” 

Ahead of the sell-off, key fundamental metrics continued on previously established trajectories. BTC mining difficulty continued its sustained increase jumping 10% on Sunday and setting a new record. BTC’s hash rate also hit an all-time high on Saturday, as did the number of active BTC addresses.

Minerd’s comment that it's “time to take some money off the table” is obviously more informed by the parabolic price rise in such a short window rather than the more fundamental metrics mentioned above. That said, market dynamics that we tend to look at for extreme degrees of leverage/speculation such as Bitfinex USD lending rates and perpetual swap interest rates are well below stretched levels. 

Crypto bull markets have historically been characterized as much by their extreme volatility as their parabolic rises. Without taking a view in terms of what stage we are in the rally, one can certainly say that this snap pull-back isn’t out of the ordinary for crypto bull runs.

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