- Bitcoin has started to recover after its drop to $30,500 yesterday
- The 26% correction was anticipated after a record-busting move to $42,000
- The correction could usher in a proper alt season
Bitcoin has begun its recovery after $10,500 was wiped off the price in less than 24 hours. Yesterday’s huge selloff, which was only a matter of time given its record breaking move to $42,000, saw the highest daily selling volume in eight months and ensured that Bitcion got close to the 30% correction it typically gets in a bull run. The day’s crazy price action also saw $3 billion liquidated on various exchanges as Coinbase failed yet again, while the correction itself could usher in the first proper alt season of the cycle.
Bitcoin Bottoms at $30,500
Bitcoin’s pullback was no surprise given its unsustainable rise to $42,000, which happened much quicker than anyone had anticipated. The pullback finally came yesterday as Bitcoin tumbled through support levels, bottoming out at $30,500:
The move represents a 26% pullback, well in line with the 30% pullbacks that we typically see in a Bitcoin bull market. Part of the reason why it fell so much was down to an issue with Coinbase whose buy button broke for a while as the price fell, further exacerbating the problem:
Unlike previous crashes in the past 2 years, where over-leveraged markets lead by trader liquidation, this one started on spot markets, then was greatly amplified by a single exchange partially failing, yet did not turn itself off for the good of the ecosystem,
— Willy Woo (@woonomic) January 11, 2021
This ‘artificial’ drop created further liquidations of long positions, causing a cascade of selling and leading to retail sellers to panic sell their positions, dropping it further. In total, yesterday saw more than $3 billion worth of liquidations across the space, reinforcing the fact that leverage trading adds an element of risk to an already risky market that is unsuitable to most traders.
Since bottoming out, Bitcoin has started working its way up through areas of resistance, showing welcome strength after the fall:
The ideal scenario now is that Bitcoin gathers strength around this area and begins a slower growth back towards its highs over a period of weeks or months. This would mean that it is creating a healthier long term position of strength rather than embarking on another unsustainable parabolic run.
Bitcoin moves in smaller cycles within a larger market cycle, and it is probable that this mini-cycle, which began in mid-September, is now over. If Bitcoin can consolidate in the $35,000-$40,000 region for a few weeks, which is more than likely as it needs to catch its breath, this would be a very healthy situation with a view to a bigger run up toward $50,000 later in the year.
Did Someone Say Alt Season?
A consolidation around current levels would also be good news for alts. Bitcoin has been the star of the show since September and has finally received its first major correction, the kind we need to see before an alt season can begin in earnest.
Most alts performed pretty well on their BTC pairing as Bitcoin tumbled, with ETH/BTC able to remain above the four-year trend line, an indicator that alts strength remains:
As we have discussed recently, once Bitcoin cools off, all the money made on its run moves into Ethereum initially before flowing into other alt coins. If this prophecy is to hold true then we need to keep an eye on this ETH/BTC chart in the coming weeks to look for strength from Ethereum compared to Bitcoin, which would be the clearest indicator we could wish for that the money flow has started and a true alt season can begin.
