The leading crypto asset in the market, Bitcoin, has seen its fair share of highs and lows. The dominant crypto asset had struggled throughout this year to reach its $50k mark, and with enough support, it went above and beyond. Though recently the price of Bitcoin has dipped under $60k, leading many to wonder if excessive bullishness was the cause of the dip.
Bitcoin has a long history of making tops which are often predicted by the market. The launch of the Bitcoin exchange-traded fund (ETF) on October 19 was no different as it lead to a 53% monthly rally to its latest-time high of $67k. To understand the recent 10% price correction is a short-term profit-taking opportunity or an end to the Bull Run, traders have analyzed Bitcoin’s previous price activities to evaluate the similarities.
Experts have also analyzed the futures premium, with some analysts pointing at the “return of the contango” after the premium, or basis rate reached the highest level of 17% in five months. The basis rate measures the price gap between regular spot market prices and futures contracts. In the recent data, the basic rate remained below 17% after a 50% rally month-to-date. This implies that the current scenario of the price is far from being optimistic.
The price action of Bitcoin in 12 years provides a few examples of bearish events, for instance, Bitcoin saw a price bottom for five months following the Chinese ban in April 2014. In the following weeks in April 2014, two of China’s largest crypto exchanges Houbi and BTC Trade claimed their trading accounts would be closed in one week at certain domestic bans. It is worth noting that these rumours were circulating since March 2014, and were fueled by a Chinese news outlet Caixin.
Data suggests that each of the events was largely anticipated by experts in the market even though there was no evidence of precise announcement date.
Overconfident buyers that accept a steep premium as leverage against futures contracts trigger cascading liquidations after a 10%-15% price drop. According to the recent data, the main derivatives metrics show that a 10% price drop from its $67k high on October 20 is not taken seriously by professional traders. The 10% correction is not a cause of worry as the basic rate stood at a safe 12% level.
