- The latest BTC price drop was likely caused by long-time holders taking their profits
- The dip was likely accelerated by the liquidation of long positions and he fact that institutional investors rest on the weekends
- Several market analysts believe that by selling now, you could miss a potential bounce back to $40,000 levels
The factors behind the recent Bitcoin price crash
As you already know, Bitcoin dropped over 30% in the night between January 10 and January 11. This has caused many rookie investors to doubt their decision of finally investing in BTC and some even liquidated their holdings in fear of even bigger losses. Price corrections like this are not at all unusual in the cryptocurrency sphere, and Bitcoint tends to return even stronger following such bear periods. In this article, we list several reasons that might have caused the recent price readjustment.
1. Long-term BTC holders are taking their profits
One of the reasons why the BTC price plunged after a day of trading above the psychological $40,000 mark is that some of the Bitcoin early adopters and early investors have decided to sell their holdings and enjoy their substantial profits. For example, take someone who entered Bitcoin before 2017 and either bought a large chunk of it or mined the cryptocurrency on a mining machine or even ordinary laptops in the early days.
Bitcoin’s recent price action has granted these people a profit of 1,000% or more – in either case, depending on the amount of Bitcoin held, this amount of money could be life-changing. Cryptocurrency consultant Mark Dukas noted in his Bitcoin Live post that the selling pressure was especially high in South Korea. Nevertheless, old hands selling and new hands entering the market is not necessarily bad. He wrote:
“The past few days in South Korea we saw whales depositing 1,000 BTC or more into the market and South Korea has been selling the $40k level hard. This is good and helps develop the long-term thesis of Bitcoin growing into a six-figure asset class. Old hands are changing the guard with new hands and for simplicity’s sake. Instead of 5 people each holding 1,000 BTC it can be 25 people holding 200 BTC.”
2. An overleveraged market
Another thing that might provide some reasoning behind the recent dip is that the market has likely moved to quickly. BTC more than doubled its price in just one month. The rapid growth created a lot of FOMO and the hype around Bitcoin’s bull run caused many investors to open additional long positions hoping that the upwards trend will continue. However, as the market flipped, many of these long positions got liquidated, removing the fuel for the over-hyped and over-leveraged market.
3. The weekend effect
It is almost impossible that you have not heard that 2020 has been the year in which the institutional investors really started opening up to the idea of investing in Bitcoin. Furthermore, many institutions went past the idea and allocated a chunk of their assets to Bitcoin. But while institutions are working with a far larger volume than an average retail investor, many of these companies close for the weekends.
Therefore, most of the BTC price movement initiated by institutional buying is happening during the weekdays. Weekends on the other hand, are the time where the market is mostly dominated by retail investors. In light with this we could start seeing price readjustments as well as a higher volatility primarily during the weekends.
Now might not be a good time to sell
Several technical analysist have warned that why it is hard to maintain a cool head during the large dips, the investors should not succumb the fear, uncertainty and doubt (FUD) and sell their BTC, especially if they have entered near the ATH price. Ending one day in the red means literally nothing if we look at the big picture and see that the correcting followed a long string of relatively high green candlesticks.
Bitcoin YouTuber Kevin Svenson noted that the highest volumes still occur at the dump, indicating that there is still a significant interest for Bitcoin and that the current bull run might not be over yet. Regarding whether now is a good time to sell, he stated:
“If you sell now, you’re going to miss on a potential bounce to $40,000 during consolidation, and overall is best to hold and keep some cash on the side to go on a shopping spree if we get the big drop.”
However, Svenson does warn about a possible drop to the mid-20k levels after the sideways consolidation before we enter the next leg of the rally. The 50% Fibonacci retracement at a bit below $26,000 and a major support level at $27,700 are being mentioned as the possible market bottoms. Nevertheless, Svenson believes Bitcoin is still in a “growth zone” and could be aiming for the $250,000 target this year, before dropping back to around $50,000 in 2022.
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