Bitcoin and the broader cryptocurrency market suffered at the end of April, and the result was the price of the main cryptocurrency dropping below $ 48,000. However, cryptanalyst PlanB noted that the rise in asset prices has not ended, it’s just correction time. Moreover, he stressed that the rise in prices showed signs of an inorganic nature, that is, it was happening too quickly.
And according to Élie Le Rest, partner at digital asset management firm ExoAlpha, this kind of market pullback is very healthy as it contributes to deleveraging market participants and builds ground for a more stable growth.
The main reason for the price rollback
Despite the fact that the fall in price coincided with the collapse of the hash rate, the main reason lies elsewhere.
According to Coin Metrics, the fall in BTC was likely due to a cascade of liquidations of heavily leveraged Bitcoin futures positions.
After Coinbase went public, open interest in Bitcoin perpetual futures reached the highest level in history.
Therefore, if the level of interest is high, there is a high probability of a major liquidation, which actually happened.
The day before the crash, the number of long positions in perpetual futures peaked in 2021. Due to the fall in the price of Bitcoin, positions with excess leverage were liquidated.
While liquidation cascades are detrimental to price in the short term, they tend to be beneficial in the long term, Coin Metrics said.
Santiment said earlier that the recent correction is unlikely to interfere with the trend.
In addition, large investors buy bitcoin during the fall. At the moment there is a significant increase in the flow of assets to the crypto market.
Thus, we see that financial experts agree that the correction is clearing the way for further growth. Analysts also note that the coin will be immediately bought back up to $ 50 thousand.
Healthy corrections also took place ahead of the 2017 rally. Then Bitcoin was worth about 8 thousand dollars, keeping within certain limits for several months. In December, there was a drawdown to 6 thousand dollars. Then, many experts inclined to believe that the predictions of a new rally in the main cryptocurrency wouldn’t come true. When the coin gained more than a thousand dollars per day, real euphoria began. As a result, traders began to bet on longs and they paid off. Buying Bitcoin at the minimum cost allowed them not only to recoup after the correction, but also to multiply their fortunes several times.
Therefore, analysts consider the recent correction to be commonplace, especially against the background of statistics for the past year. That is, such corrections are a healthy and natural element of any growth cycle. After their end, the Bitcoin price tends to shoot upward, breaking previous highs. In addition, such a pullback is not critical even for traders who can quickly recoup. We should note also that for some market players, Bitcoin has already become a full-fledged protective tool, “digital gold”.