First Mover: Bitcoin’s Plunge to $31K Shows How Bullish Market Had Become

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Bitcoin (BTC) saw its biggest drop in four months, falling 9% after a seven-day winning streak that took prices to a new all-time high of $ 34,347 on Sunday.

“Bitcoin urgently needs to be reset,” Matthew Dibb, Co-Founder and COO of Stack Funds told CoinDesk.

Some analysts saw signs that cryptocurrency traders might switch from Bitcoin to digital market alternatives such as Ether (ETH) and Litecoin (LTC). Ether, the second largest cryptocurrency, rose 27% on Sunday to hit a 35-month high above $ 1,150 early Monday. Litecoin, the fourth largest cryptocurrency, changed hands at its highest level since April 2018.

In traditional markets, European indices rose on the first day of trading of the year on encouraging signs of a recovery in manufacturing, and US equity futures indicated a higher opening. Gold rose 1.9% to $ 1,935 an ounce.

Market moves

The cryptocurrency markets in 2021 have so far looked similar to 2020: Prices have increased.

After quadrupling last year, Bitcoin gained about 7% in the first few days of January. That’s almost half of the gains the Standard & Poor’s 500 Index made for all of 2020.

Ether, the second largest cryptocurrency by market value, rose 26% on Sunday alone and exceeded the USD 1,000 mark for the first time since February 2018. The price of digital assets rose almost five times over the past year.

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

“At this point in time, we can assume that we will easily exceed the $ 1 trillion mark in the next few months,” wrote Mati Greenspan, founder of forex and cryptocurrency research company Quantum Economics, last week.

In context, keep in mind that it was big news in traditional markets when the outstanding amount of US leveraged loans granted to junk-grade companies rose to approximately US $ 500 billion in late 2010. Soared, then doubled to $ 1 trillion in early 2018.

Bitcoin’s total market capitalization has more than doubled to nearly $ 900 billion in just a few months.

Source: CoinMarketCap

Such rapid (and frankly astounding) growth in the digital asset markets should, in theory, have any responsible financial journalist round up experts who may be talking about the growing risks.

Aside from the usual warnings that cryptocurrencies are volatile and prone to unexpected and punitive price corrections, analysts and traders say that the institutional adoption of Bitcoin, Ether and a number of other digital tokens is likely to be just beginning.

And it’s far more likely that prices will continue to rise at this point than suddenly reverse, with no major surprises like last year’s pandemic that saw American Airlines’ stocks float to Zoom.

Jim Bianco, a popular Wall Street veteran who now heads Bianco Research, tweeted on Jan. 2 that Bitcoin was “making Tesla look like it’s standing still,” referring to the electric car maker’s share price.

First Mover previously discussed that when Bitcoin breaks new ground, investors reading price chart patterns – a common practice among crypto traders known as “technical analysis” – have fewer signposts to shut down.

Just a month ago, when the cryptocurrency changed hands for $ 19,000, Kraken Intelligence, a research unit at the Kraken digital asset exchange, released results of a survey that found that customers expect an average price of $ 36,602 in 2021 The goal would be Bitcoin’s biggest profits for the year already on the books.

But respected professionals in both the digital asset markets and Wall Street have recently issued price predictions of $ 50,000 to $ 400,000.

The truth is that no one knows where prices are going, just as no one can say for sure that the economy of 2021 will be better than the bleak 2020 that has just ended. Or how much extra money the Federal Reserve and central banks around the world may need to create to fund stimulus measures and prop up financial markets.

It seems clear that “for the time being, there are hardly any signs that the rally is over,” as Matt Blom, sales and trading manager of the cryptocurrency company Diginex, put it in his daily newsletter on Sunday.

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

Bitcoin Watch

Bitcoin perpetual swap funding rates have increased, a sign of the increased demand for leverage in long bets.

Source: Glassnode

Bitcoin pulled back sharply early Monday in a move typical of the bull market correction.

Prices fell from $ 33,000 to $ 28,000 before rising back to $ 30,000. The sharp correction has erased the rally from $ 29,000 to over $ 34,000 in the past three days.

A correction appeared to be in sight: the perpetual swap funding rate – an indicator of the cost of maintaining a long position in the derivatives market – hit an 11-month high of 0.137% earlier this morning. An increased funding rate can indicate excessive bullish leverage and often leads to setbacks similar to those seen in late November. Despite the price drop on Monday, the refinancing rate fell only slightly to 0.122%.

According to trader and analyst Michaël van de Poppe, Bitcoin came under pressure as the spread between EUR / USDT (euro-denominated euro exchange) and the EUR / USD spot rate normalized. EUR / USDT was up to 1.33 on Saturday – a 9% premium versus Friday’s EUR / USD spot rate of 1.23, according to data provider TradingView.

“That may have increased the Bitcoin-denominated price,” Poppe said, adding that the premium normalized early Monday. Tether (USDT) is the largest dollar-pegged stable coin by outstanding amount.

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

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

What is hot?

Nigel Green, CEO of DeVere Group, sold half of the Bitcoin holdings over the holidays and plans to “buy again in the dips” (CoinDesk).

Bitcoin options go to $ 200,000 after the recent spike (CoinDesk).

Bitcoin mining company Riot Blockchain hands over a market capitalization of USD 1 billion (CoinDesk).

Bitcoin worth USD 1 billion to leave Coinbase as “FOMO” purchase by the institutes, says analyst (CoinDesk)

Scaramucci’s SkyBridge has already invested $ 182 million in Bitcoin (CoinDesk).

Dogecoin doubles after tweets from adult movie stars that she is holding the “Memecoin” token (CoinDesk).

Bitcoin Prices in 2020: Here’s What Happened (CoinDesk)

Analog

The latest on economics and traditional finance

The Japanese government is considering a state of emergency for the Tokyo region (Reuters)

From stocks to emerging markets, investors are betting that the “Everything” rally will continue (WSJ).

How the Fed’s $ 120 billion monthly bond purchase program is suppressing lending (WSJ)

Trump tapes an official in Georgia state to find his vote (AP)

SPACs, also known as blank check companies, hit a record more than $ 80 billion in 2020, six times as much as in 2019 (WSJ).

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