The recent extreme volatility in the cryptocurrency market following the fall of Bitcoin (BTC) to the USD 30,000 level and subsequent rally to USD 38,000 has confused traders as to whether the current price action is a “dead cat bounce” leading to token Prices will lead to falling or if there is a solid trend reversal that will create the floor for the next uptrend in the market.
While the price of BTC is still more than 40% below its all-time high of $ 64,863, the bulls have managed to withstand multiple attempts to break well below the support at $ 36,000.
A more detailed analysis of the on-chain data and forex deposits shows that the Bitcoin sell-off led to the demise of the entire market and the Delphi Digital analyst. Nick Pappageorge emphasized the fact that BTC deposits on exchanges “exceeded 20,000 bitcoins in just one hour on Wednesday,” the highest level since March 2020.
The FUD destabilized the market
One of the main sources of pressure in the marketplace identified by Pappageorge has been the FUD (Fear, Uncertainty, and Doubt) daily headlines, including a new Chinese government ban on cryptocurrencies and concerns that Tesla may sell its bitcoin holdings. This wave of negative news prompted retailers to deposit their coins on exchanges to avoid further price drops.
Pappageorge also highlighted concerns raised by a couple of hacks on the Binance Smath chain that involved the price of PancakeSwap (CAKE) Y. Pancake bunny (BUNNY), with the latter losing USD 45 million in funds from their users, To exacerbate market fears.
The mood shift this week was partly due to positive news like the Creation of a Bitcoin Mining Council After a meeting between Elon Musk, Michael Saylor and bitcoin miners in North America that resulted in a shift in BTC and altcoins. The rapid reversal sparked a debate about whether current market activity resembles a dead cat bounce or a trend reversal.
70% Nuke -> 80% Bounce -> 10% Dip
Dead cat or reversal pic.twitter.com/qefB6y4ahQ
– Darren Lau (@Darrenlautf) May 25, 2021
70% crash -> 80% rebound -> 10% drop
Dead Cat Bounce or Trend Reversal?
The most experienced dealers gathered in the fall
While many of the new entrants to the cryptocurrency market have found the recent volatility nasty, Veterans did not miss the opportunity to buy BTC at a 50% discount. When the number of new addresses they had collected hit new records in the turmoil of last week.
The popular Twitter person and Bitcoin analyst, PlanB released the graph below, which shows how Bitcoin closely follows the Stock-to-Flow (S2F) model and shows that the recent decline is within the range the model is tracking.
“Buying opportunities like today are rare (Q1 2019 when I wrote the S2F article, March 2020 due to Covid and now). Life is about options.”
As for the bullish signals required for a quick rebound, The May 24th Delphi Daily report by Ashwath Balakrishnan highlighted the “sharp increase” in the circulating supply of stablecoin supported by fiat from “15 billion to nearly 21 billion in the last 5 days.”
While this could be a sign that drop buyers are “loading ammunition”, Balakrishnan pointed out that “they could just as easily be stable arbitrageurs” and stressed the importance of “ensuring that circulating supply does not drop sharply to confirm that these deposits are being used”.
There is now a record amount of liquidity on the exchanges, but at the same time an entirely new cohort of crypto investors who have just seen their first 50% withdrawal are wondering whether to pull out of the market or double their investment. Veterans bet the market will rise, but volatility is guaranteed.
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