|

A painful crypto correction or the end of the rally?

The crypto market has turned red. On the second day of the week, digital currencies moved into a massive correction. Hardly anyone was surprised by the sell-off after such impressive growth; nevertheless, it is always much harder to accept the decrease than to enjoy the growth and predict new highs. As Bitcoin approached $60K, it was expected to decline. Technical indicators, over-the-top hype, and speculations were clearly pointing to an impending drop.

The benchmark cryptocurrency has lost 11% in 24 hours and is trading around $49K, having recovered slightly from its plunge to $45K. However, there is a high probability that there may be a lot fewer market participants willing to buy the asset at current levels than sellers who are taking profits. It is worth noting that in some cases, we may see profit-taking after purchasing the asset on the plunge to a low around $5K in March 2020.

According to analyst firm Bybt, $750 million worth of Bitcoin positions were liquidated in one day. In just one hour on February 22nd, $400 million worth of long positions in Bitcoin futures were liquidated. It is also very likely that investors entered the market and started playing against the crowd, as they did in late 2017. The current situation is thought to be a "healing reset" for the market. Whether this is true will become apparent within a week.

Ethereum (ETH), the leading altcoin, showed an even larger decline, falling 18% overnight and trading near $1500. The drop comes along with the entire market, but in Ethereum, it may be even more significant, as the coin has shown more rapid growth since the beginning of the year (+167%) compared to Bitcoin (+93%). Ethereum again became the leading coin for miners, and commissions jumped to inadequate levels, which refers us to the situation in 2017. ETH confidently overcame its historical maximum, unlike most altcoins, but very quickly returned to it.

In the near future, the prospects of the crypto market will be seriously influenced by the comments of U.S. monetary authorities. If the economy continues to receive stimulus not only in words, the situation with high-risk assets may stabilise for a while.

The confrontation between the SEC and XRP will be another important precedent for the market. We can already see that even without a final decision, Ripple is taking a severe reputational hit. MoneyGram, which has long been considered one of Ripple's main trump cards, has refused to use XRP. Moreover, U.S. financial authorities may similarly deal with other projects that, for whatever reason, will be perceived as systemic risks to the economy.

Author

Alexander Kuptsikevich

Alexander Kuptsikevich, a senior market analyst at FxPro, has been with the company since its foundation. From time to time, he gives commentaries on radio and television. He publishes in major economic and socio-political media.

More from Alexander Kuptsikevich
Share:

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

By subscribing you agree to our Terms and conditions.

Editor's Picks

Avalanche struggles near $12 as Grayscale files updated form for ETF

Avalanche trades close to $12 by press time on Wednesday, extending the nearly 2% drop from the previous day. Grayscale filed an updated form to convert its Avalanche-focused Trust into an ETF with the US Securities and Exchange Commission.

Bitcoin slips below $87,000 as ETF outflows intensify, whale participation declines

Bitcoin price continues to trade around $86,770 on Wednesday, after failing to break above the $90,000 resistance. US-listed spot ETFs record an outflow of $188.64 million on Tuesday, marking the fourth consecutive day of withdrawals.

Michael Selig assumes role as new CFTC Chair, what does this mean for crypto?

Michael Selig has been sworn in to serve as the 16th Chairman of the Commodity Futures Trading Commission. Selig was confirmed by the US Senate to head the commission last week, following his October nomination by the US President Donald Trump.

Crypto.com hires sports trader for event prediction market-making

Crypto.com plans to recruit a quant trader for the sports market-making team to buy and sell financial contracts related to these events. Opponents argue that internal trading desks put operators or their affiliates on the opposite side of customer trades. 

Orange Juice Newsletter – Smart insights by real people. Every day.

A free newsletter highlighting key market trends to help traders stay a step ahead. Daily insights on the most relevant trading topics, compiled by our experts in an easy-to-read format so you never miss an important move.

Bitcoin: Fed delivers, yet fails to impress BTC traders

Bitcoin (BTC) continues de trade within the recent consolidation phase, hovering around $92,000 at the time of writing on Friday, as investors digest the Federal Reserve’s (Fed) cautious December rate cut and its implications for risk assets.