First move: Bitcoin’s dive to $ 31,000 shows how the Bullish Market became

Bitcoin (BTC) had its biggest setback in four months and fell 9% after a seven-day winning streak that raised prices to a new high of $ 34,347 on Sunday.

“Bitcoin has a much-needed reset,” Matthew Dibb, co-founder and COO of Stack Funds, told CoinDesk.

Some analysts have seen signs that cryptocurrency traders might turn out of bitcoin into alternatives in the digital market such as ether (ETH) and litecoin (LTC). Ether, the second-largest crypto-currency, rose 27% on Sunday, hitting a 35-month high of $ 1,150 early Monday. Litecoin, the fourth largest crypto-currency, has changed hands at its highest since April 2018.

In traditional markets, European indices rose on the first trading day of the year, driven by encouraging signs of a recovery in manufacturing, and U.S. stock futures showed a higher opening point. Gold strengthened 1.9% to $ 1,935 per ounce.

Market movements

Cryptocurrency markets so far in 2021 look a lot like in 2020: prices are higher.

After quadrupling last year, bitcoin rose about 7% in the first few days of January. This is almost half of the profit that the Standard & Poor’s 500 index achieved during the whole of 2020.

Ether, the second-largest cryptocurrency by market value, rose 26% on Sunday and rose above the $ 1,000 mark for the first time since February 2018. The price of the digital asset rose almost fivefold last year.

And even with the 67% drop last month for the third largest digital asset, XRP (XRP), the total market capitalization of the crypto industry has more than doubled in the past two months to about $ 883 billion.

“On the current track, we can estimate that we will easily reach a trillion-dollar mark in a few months,” Mati Greenspan, founder of currency and cryptocurrency analysis Quantum Economics, wrote last week.

Remember for the context that it was big news in traditional markets when the outstanding amount of US “leveraged loans” – loans to companies with junk-grade credit ratings – grew to about $ 500 billion at the end of 2010, and then to $ 1 trillion early in 2018.

Bitcoin’s total market capitalization has more than doubled to almost $ 900 billion within a few months.

Such rapid (and frankly astonishing) growth in digital asset markets should theoretically scare any responsible financial journalist to bring together experts who can discuss the growing risks.

But aside from the usual warnings that cryptocurrencies are volatile and prone to unexpected and punitive price corrections, analysts and traders say it is likely that institutional acceptance of bitcoin, ether and a variety of other digital signs is just beginning.

And that prices will continue to rise much more at this point than to suddenly stop, without there being any major surprises like last year’s pandemic, which sent fluctuating stocks from American Airlines to Zoom.

Jim Bianco, a Wall Street veteran who now heads Bianco Research, tweeted on January 2 that bitcoin ‘make Tesla stand still, ”Referring to the electric car manufacturer’s share price.

First Mover previously discussed that when bitcoin enters unfamiliar territory, investors reading price chart patterns – a common practice among crypto traders, known as ‘technical analysis’, have fewer signposts to key out.

Just a month ago, when the cryptocurrency exchanged about $ 19,000, Kraken Intelligence, a research unit of the digital asset exchange Kraken, published the results of a survey in which it was noted that customers in 2021 have an average price of $ 36,602 expected. on target, bitcoin’s biggest gains for the year would already be in the books.

But respected benefits in both digital asset markets and on Wall Street recently boasted price forecasts of $ 50,000 to $ 400,000.

The truth is that no one knows where prices are heading, just as no one can say with certainty that the 2021 economy will be brighter than the dark 2020 that has just ended. Or how much additional money the Federal Reserve and central banks around the world may have to fund stimulus measures and promote financial markets.

What is clear is that, for now anyway, ‘there is no sign that the rally is over’, as Matt Blom, head of sales and trading for the cryptocurrency firm Diginex, put it in his daily newsletter on Sunday .

“Bitcoin started the year exactly as the last bid ended,” Blom wrote.

Bitcoin Watch

Funding rates have climbed on bitcoin’s perpetual swaps, a sign of increased demand for leveraged financing on long bets.

Bitcoin retreated sharply early Monday in a typical move to correct the bull market.

Prices dropped from $ 33,000 to $ 28,000 before jumping back to $ 30,000. The sharp correction wiped out the rally from $ 29,000 to more than $ 34,000 in the previous three days.

A correction seems to be underway, with the permanent exchange financing rate – a power of attorney for the cost of maintaining a long position in the derivatives market – reaching an 11-month high of 0.137% early on. . An increased funding rate can indicate excessive leverage and often results in setbacks such as those seen at the end of November. Even with the price drop on Monday, the financing rate dropped only slightly to 0.122%.

According to trader and analyst Michaël van de Poppe, bitcoin came under pressure when the spread between EUR / USDT (euro’s fixed exchange rate) and the EUR / USD spot rate normalized. According to data provider TradingView, the EUR / USDT jumped to 1.33 on Saturday – a 9% premium to the EUR / USD sight rate of 1.23.

“This may have increased the price of bitcoin’s fixed price,” Poppe said, adding that the premium began to normalize early Monday. Tether (USDT) is the largest dollar-linked stable currency by outstanding amount.

Investors expect the cryptocurrency to trade volatile over the next four weeks. This is evident from the rise in implied volatility from one month to almost 100%, according to data provider Skew, the highest level since March 2020.

However, analysts expect bitcoin declines to be short-lived. “Our dissertation remains extremely bullish, with a target of $ 40,000 by February,” Matthew Dibb, co-founder and COO of Stack Funds, told CoinDesk.