- Bitcoin dipped below $48,000 on April 23; altcoins followed along by posting even greater losses
- The Bitcoin rally that ended with the ATH price of $64,816 was fuelled by institutional interest, stimulus checks, fear of inflation and a generally bullish sentiment prevailing on the cryptocurrency market
- China’s miner outage, Biden’s announcement of changes to the U.S. tax policy and liquidation of more than $1.85 billion worth of overleveraged long positions contributed to the April 23 dip
- Corrections of 20% or more are a common occurrence on crypto markets
- While no BTC holder loves them, they make the market healthier by weeding out the overly greedy investors and week hands
In the night between April 22 and April 23, Bitcoin dropped from $55,000 to less than $48,000. The apparent trend reversal in the price chart of the world’s largest cryptocurrency unsurprisingly also affected the altcoin market.
The total crypto market capitalization dropped by more than 15%, plunging deep below the $2 trillion valuation down to $1.75 trillion in the morning hours of April 23.
However, history shows us that market corrections like the one seen recently are a common occurrence on crypto markets. Therefore, there’s likely not a legitimate reason to panic just yet. To help you better understand the recent Bitcoin price movements, we have laid out the circumstances that fuelled the BTC rally as well as events that could have contributed to the April 23 dump.
What fueled the Bitcoin rally?
Bitcoin has been on a bull run ever since the autumn of 2020, when the largest crypto asset was trading just slightly above the psychological $10,000 mark. U.S. based publicly traded company MicroStrategy bought their first BTC in August and the company’s CEO Michael Saylor stated that after thorough examination, he came to the conclusion that Bitcoin was “the best treasury reserve asset”.
Saylor made headlines with this statement and institutional interest started gaining traction in autumn of 2020. Some smaller companies followed Saylor’s lead and MicroStrategy also accumulated even more Bitcoin. At the same time, the Grayscale Bitcoin Trust was seeing record inflows.
Additionally fuelled by the awakening retail interest, Bitcoin ended the year above $29,000 and soared as high as $41,850 in the beginning of January. Tesla making a $1.5 billion BTC purchase triggered another rally, which caused BTC to reach as high as $58,000. Because of its amazing performance, Bitcoin gained a lot of media attention as well and the money eventually started flowing towards cryptocurrency exchanges. Because of the outstanding performance and the increasing adoption among institutions as well as individuals, even big Wall Street players started changing their minds about Bitcoin.
The last in the series of events that contributed to the bullish sentiment across the cryptocurrency markets was the successful listing of Coinbase on NASDAQ. On the day of the Coinbase’s public debut, Bitcoin changed hands at a price of $64,816 per coin, which is still the asset’s all-time high price.
What contributed to the April 23 sell-off?
Now that you understand what contributed to Bitcoin’s fast appreciation, let us examine what might be the reasons for such a sell-off. Although cryptocurrency markets do not necessarily need an obvious reason to move up or down, large dips are usually associated with one or several events that negatively influence the market sentiment.
This time around it was likely the announcement of changes to the U.S. tax code by the Biden administration, which intends to almost double the taxes on capital gains of over $1 million, potentially strengthening the U.S. dollar. At around the same time, we saw the largest daily drop in Bitcoin hashrate since November 2017 due to the power outage of the Xinjiang (China) based miners.
Although Bitcoin is decentralized and cannot easily be censored, the fact that Turkey banned cryptocurrency payments aggravated the already bearish sentiment. As always when there are rapid changes in the asset’s price, unbacked margined positions get liquidated.
According to data from Glassnode, $1.85 billion worth of long positions during the April 22 and April 23 dip, indicating that traders were highly levered going into Coinbase’s stock market debut. This caused BTC to reach the bottom at around $47,700.
Why should you not worry?
The first and foremost reason is that market corrections of 20% or even more are a common occurrence when it comes to cryptocurrencies. As seen in the chart below, there were at least 8 big corrections (drop by over 15%) in the legendary bull run of 2017.
8 major market corrections can be seen in the price chart of BTC/USD for year 2017. Nevertheless, the bull run caused BTC to climb to $19,927, which claimed the title of ATH price up until December 2020.
Another metric that provides bullish sentiment is that Bitcoin is flowing out of exchanges as the amount of BTC held in exchange wallets is on a steady decline. Investors that move their coins out of an exchange usually have no intention to sell in the near future as they are interested in long-term holding.
A lower supply of instantly tradable coins combined with the increasing interest in BTC should result in an increase of the Bitcoin price. Furthermore, while small retail investors were selling, the Bitcoin whales and strong holders accumulated even more of the limited supply crypto. In addition, even the prominent Wall Street investor Bill Miller recently stated that Bitcoin is “digital gold” and that the high volatility indicates that Bitcoin is in the process of going mainstream and is not a bubble market.
To conclude, Bitcoin is still a very good reserve asset that defies inflation, which will likely be a dreading problem of fiat currencies in the world post COVID-19. Nevertheless, several analysts believe that Bitcoin will revisit low $40,000s before surging to six-figures. It is up to you, whether you will look at it as another period of fear and panic or an excellent opportunity to accumulate BTC at a discounted price.
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