Bitcoin’s parabolic surge, well above its previous all-time high, has seen a lot of déjà vu since 2017, and a number of analysts fear that the market is overdue for a sizeable correction.
On January 8, Bitcoin (BTC) price hit a new all-time high of $ 41,940, and this week’s 28% collapse to $ 31,076 had professional and retail investors feared a major turnaround was imminent.
BTC / USDT 4-hour chart. Source: TradingView
Bitcoin’s historical data shows that rapid parabolic surges are usually followed by just as catastrophic corrections as they were after the 2017 bull run. Because of this, the similarities of the current market to the euphoric mania of 2017-2018 have not gone unnoticed.
Timothy Peterson, Cane Island’s global macro investment manager, recently pointed out that:
“Bitcoin’s risk is approaching 2017 levels. Investors buying at this price can expect to lose 40% of their investment at some point in the future. However, the typical maximum drawdown is 30%, so this risk is only slightly higher than the average. “Bitcoin risk based on current valuation levels. Source: Twitter
In a private conversation with Cointelegraph that followed, Peterson noted that there is still a short-term bull case for Bitcoin that states:
“For Bitcoin’s valuation to reach 2017 levels, it would have to be at least $ 80,000. There is a small chance that would happen, and if it did, it would happen quickly. High prices tend to go even higher. “
Popping Bubble or Lower Support Retest?
There are some tell-tale signs that Bitcoin’s rapid gains reflect a manic market poised to correct, and the current debate between bulls and bears centers on whether this week’s volatility is a healthy pullback, lower supports to test before the price initiates the next increase.
LookIntoBitcoin founder and Decentrader analyst Philip Swift recently claimed that Bitcoin’s Preenet price action reflected a “required pullback / slowdown” and noted that several indicators were blinking red, indicating that BTC’s price increase was extreme.
“The price has now fallen below the x3 multiple, where I assume it will stay for a while. As others have noted, the price was likely at x3 (past x2) as we had an earlier mania phase in the cycle compared to the previous cycle where both retail and institutional buying. “Bitcoin Golden Ratio multiplier. Source: Twitter
Swift’s analysis shows that BTC is likely to trade sideways and increase slowly in the short term, but more slowly “as some money / profit turns into altcoins”. Recent price movements in altcoins, especially DeFi-related tokens, suggest that this rotation may already be underway.
BTC cops aren’t done yet
While analysts and chart watchers are urging Bitcoin to take a breather, bullish traders may have indicated that they have other plans. This week bulls defended retesting lesser support multiple times by buying into each slump, and there is also expectation that institutional inflow into BTC will resume after Grayscale reopened its GBTC family of products.
A look at the 30-day average daily sentiment value for Bitcoin shows that despite the decline, the average value has declined only marginally from recent highs and is well above the lows of previous downward cycles.
Price vs. 30-day average mood value. Source: TheTIE
While few know exactly how Bitcoin price will move this weekend, technically stronger fundamentals, heightened institutional inflow and positive announcements from state regulators suggest that the recent slumps have been nothing more than healthy corrections, which inevitably took place before the Bitcoin aisles reached a new all-time high.
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