What the Latest Price Slide Means for Bitcoin (BTC)
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Crypto markets lost more than $500B during a series of corrections in May. Bitcoin (BTC) is now down more than 45% from its peak, after recovering to $36,667 in $1,000 leaps.
The position of BTC is still precarious, and sentiment has reached “extreme fear”, with suggestions of a further price drop. At the same time, the new week changed the price direction, suggesting the price drop may have been a temporary liquidation event. Enthusiasm for crypto assets remains high, as even NFT tokens may continue to attract buyers.
BTC is much more volatile in the second quarter of 2021, with the 30-day volatility index near 6%, after hovering under 3% for months.
However, not all analysts agree that the latest price slide is the end of the crypto bull market across the board. There are still indicators BTC and other assets may defend their price levels and continue crypto expansion and adoption.
One of the most encouraging data points is the fact that the recent selling came from new buyers, panicking at holding a rapidly depreciating asset. However, long-term accumulation behavior increased, in fact adding two “whale” storage wallets above 10,000 BTC.
Once again, the growing popularity of BTC pulled in new buyers, who had not seen the rapid unraveling of the markets in 2017. At one point, most assets during the bear market lost up to 99% of their value, with BTC reaching as much as 75% down from peak prices before attempting new highs.
The recent price slide was not unprecedented, though at this scale, the losses and volatility are even more stressful for investors. BTC and crypto assets are either considered to be a bubble, or to be in a stage of price discovery where volatility is to be expected.
Fear is the Leading Sentiment for BTC
The crypto fear and greed index has repeated the lows from March 2020, sinking to 10 points. On March 15, 2020, the 50% slide depressed the index to 8 points, close to absolute lows.
The index reflects trading behavior for BTC, which has now become more cautious. Still, volumes above $81B per day are close to the upper range for BTC activity. The worsened sentiment may be linked to the temporary withdrawal of funds from the futures markets.
BTC and all crypto markets suffered significant deleveraging after a series of liquidations. The recent price slide was amplified by leveraged trading positions and a cascade of liquidations. After the liquidations abated, the price started to regain some of the previous levels.
There are expectations BTC may attempt a relief rally, as well as a re-building of leveraged positions.
Miners Decrease Activity on China Regulation News
The Bitcoin hashrate has retreated to above 140M TH/s, down from above 180M TH/s, its absolute peak. The slide is the equivalent of a large mining pool or mining farms shutting down.
The fears of a “mining death spiral” will be unfounded, as a lower mining rate will readjust difficulty to produce 10-minute blocks. So far, there have been no block anomalies with the lower hashrate and a relatively high difficulty.
One of the reasons for the lowered hashrate is the decision of the Huobi mining pool to stop adding new miners from Mainland China.
The Huobi mining pool produces around 6.4% of BTC blocks over time. In the current state of the BTC network, three leading pools produce more than 50% of blocks – Poolin, AntPool and F2Pool. Despite worries of a potential network attack, so far there have been no block anomalies and each pool acts as a motivated competitor.
DeFi and Altcoins Keep the Pace
Altcoins saw significantly more slippage during the latest sell-off. Ethereum (ETH) sank under $2,000, only to recover to above $2,300 on Monday.
One of the encouraging signs was the position of the DAI stablecoin, which did not move from its $1 fixed rate and even reached record turnover. At the same time, the newly minted Terra USD slid to $0.95, showing some weakness in fully algorithmic stablecoins.
The continued price slide, however, tested even the well-performing DeFi saver collateralization services. Using DeFi remains highly risky during choppy price movements.
Some traders allow for a potential “DeFi decoupling”, in which the economy of collateralized tokens moves in its own direction, independent of BTC prices. However, the recent pullback showed that DeFi assets were heavily affected by the sell-off, as the sector is still in its early stages.
The BTC market cap dominance actually increased after the crash, to above 42% after almost sinking under 40% for the first time since 2018. The current slide once again places the question whether BTC will attempt new highs, or repeat a long bear market. At the current price levels, even the investment of Tesla, Inc. is under water, though the company has set expectations it is not in a hurry to sell.
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