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Data shows that Bitcoin price hikes of $ 1,000 are followed by a 38% decrease

May 1, 2020

This week, Bitcoin’s price has seen an incredible surge that seems to have exceeded many investors’ expectations. Cointelegraph Markets and CoinMarketCap data They show record trading volume on multiple cryptocurrency exchanges that occurred when the price of Bitcoin rose to $ 9,400. However, this does not mean that the long-awaited bull market has started.

Daily price chart of the crypto market. Source: Coin360

Data shows that Bitcoin price hikes of $ 1,000 are followed by a 38% decreaseData shows that Bitcoin price hikes of $ 1,000 are followed by a 38% decrease

History shows that when Bitcoin (BTC) rose more than $ 1,000 in a single day, it underwent a significant correction. The recent increase from USD 7,700 to USD 9,400 and the correction pattern determined by analysts suggest a decline.

Various technical indicators indicate the possibility of a short-term correction. Most notable is the Relative Strength Index (RSI) on the daily chart, which stands at 72, indicating that Bitcoin has been overbought.

Strong arguments for a serious Bitcoin crash

Bitcoin price rose above the top three trend reversal points, reaching $ 9,400. It exceeded the 200-day moving average (SMA), the exponential 200-day moving average (EMA), and the Fibonacci retracement level of 0.618, calculated between $ 3,600 and $ 14,000.

Typically Bitcoin cannot overcome all three key areas of resistance in one intraday move with no pullback signs. If so, the asset will experience a sharp decline as traders try to capitalize on their positions.

Timothy Peterson, CAIA manager at Cane Island Alternative Advisors, said Bitcoin’s price had increased more than $ 1,000 in 24 hours in just 14 hours.

According to Peterson, the price of Bitcoin fell 5, 21 and 38 percent after intraday movements of $ 1,000.

Bitcoin falls back after intraday movements of $ 1,000. Source: Timothy Peterson

After 10 to 20 percent, the price tends to move strongly because the market structure changes in a short time. The market tends to switch from a short majority to a long majority, which increases the likelihood of a long long squeeze.

At BitMEX, for example, the financing rate for ether (ETH) futures is over 0.11%. This means that an operator opens a long position of USD 100,000The operator would have to pay $ 110 or $ 330 a day every eight hours to keep the position open.

When the price of cryptocurrencies begins to fall and lose momentum, expensive financing rates put long holders under pressure to adjust their positions., which leads to a decline in the market.

Variables to consider

The Bitcoin market can remain irrational for long periods of time. Funding rates can be significantly high and the market can be overbought days or even weeks before a correction is made.

General sentiment regarding subprime assets is currently improving due to hopes of reopening the economies of the United States and Europe.. As a result, the main markets and prices are increasing.

Bitcoin is likely to take advantage of the growing positivity in the global stock market, resulting in an excessive recovery in a short period of time. Although Bitcoin appears to have changed its trend from bearish to bullish, a downturn in traditional markets or negative news related to the coronavirus pandemic could easily lead the crypto market to give up its recent gains.

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