The recent extreme volatility in the cryptocurrency market after Bitcoin (BTC) fell to $ 30,000 and rebounded to $ 38,000 has confused traders as to whether the current price action is a “dead cat bounce”, where token prices will go down or a solid reversal will set the bottom higher for the market for the next leg.
While BTC price is still more than 40% below its all-time high of $ 64,863, bulls have weathered multiple attempts to break well below the $ 36,000 support.
A closer look at the on-chain data and exchange rate inflows shows that the Bitcoin sell-off led to a market-wide downturn, and Delphi Digital analyst Nick Pappageorge highlighted the fact that BTC inflows into exchanges on Wednesday in was over 20,000 BTC for just one hour. This was the highest level since March 2020.
FUD-o-rama destabilizes the market
One of the main sources of market turmoil identified by Pappageorge was the seemingly daily FUD headlines, including another Chinese government ban on cryptocurrencies and concerns that Tesla would drop its bitcoin holdings. These successive tales of fear prompted retailers to dump their coins on exchanges to avoid further price drops.
Pappageorge also highlighted concerns raised by a couple of hacks on the Binance Smart Chain that saw the price of PancakeSwap (CAKE) and Pancake Bunny (BUNNY) drop, with the latter dropping $ 45 million in user funds, to exacerbate market fears.
This week’s turnaround was fueled in part by positive headlines like the formation of a Bitcoin Mining Council after a meeting between Elon Musk, Michael Saylor, and North American Bitcoin miners, which has resulted in a turnaround in BTC and altcoins. The rapid reversal thus sparked the 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
Experienced traders accumulate at lower prices
While many of the newer entrants in the cryptocurrency market felt the recent volatility was nasty, the more seasoned investors took the chance to accumulate BTC at a 50% discount as the number of new accumulation addresses hit new highs during the shakeout.
Well-known Twitter personality and Bitcoin analyst PlanB have released the following graph showing how Bitcoin oscillates around the Stock-to-Flow (S2F) model. The recent downturn is well within the standard range from which it is deviating.
“Buying opportunities like today are rare (Q1 2019 when I wrote the S2F article, March 2020 due to Covid and now). Life is all about choices. “
Regarding bullish signs needed for a quick recovery, the May 24th Delphi Daily report by Ashwath Balakrishnan highlighted the “soaring” circulating supply of fiat-backed stablecoin, which rose from $ 15 billion in the past 5 days . has risen to almost 21 billion. ”
While this could be a sign that Dip buyers are “reloading ammunition”, Balakrishnan was confident that “they could just be stable arbitrageurs,” and stressed the importance of “ensuring that supply is in circulation does not decrease sharply to confirm this tributaries are used. “
A record amount of dry powder is now available on the exchanges. At the same time, an entirely new cohort of cryptocurrency investors who have just seen their first 50% retreat are now wondering whether to pull back or double their investment. The more experienced in the crowd are betting that the market will go higher but further volatility is as good as guaranteed.
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