BTC Price Flash Crash Just 6 Days After New ATH — A Normal Correction?

Bitcoin (BTC) has experienced a significant dip over the last 48 hours, sending shockwaves through the market. The leading cryptocurrency dropped over 8%, falling from as high as $65,000 to below the $61,000 mark, according to data from CoinMarketCap.

The decline marked the currency’s most substantial single-day drop since November 9, 2022, when it plummeted over 14% amidst the collapse of Sam Bankman Fried’s FTX, once the third-largest exchange.

Notably, the downturn represents a more than 16% pullback from its all-time high of over $73,500 achieved just last week.

Key Takeaways

  • Bitcoin’s recent 8% dip marks its largest single-day drop since November 2022, reflecting a significant pullback from its all-time high of over $73,500 achieved the previous week.
  • The crash is attributed to several factors, including excessive market leverage, the impact of Ethereum’s Dencun upgrade, and a pessimistic mood over SEC-approved Ether spot ETFs.
  • Substantial outflows from spot Bitcoin ETFs, particularly the Grayscale Bitcoin Trust, further contributed to the market dip.
  • Despite the downturn, the outlook for Bitcoin remains positive, buoyed by inflows into digital assets and the forthcoming halving event.
  • Analysts note that a 20% correction is normal in bull markets.

Why Did Bitcoin Crash?

The recent crash has been attributed to a variety of factors. In a recent post on X, trader and economist Alex Kruger elaborated on the crash’s catalysts, ranking them in order of significance.

The excessive leverage within the market topped the list, followed by the negative impact of Ethereum on the market dynamics, particularly after the recent Dencun upgrade. The diminishing likelihood of the U.S. Securities and Exchange Commission (SEC) approving an Ether spot ETF by May also contributed to the market’s bearish sentiment.

The 7-day Bitcoin chart, from an all-time high of $73,750 to $63,000. (CoinMarketCap)
The 7-day Bitcoin chart, from an all-time high of $73,750 to $63,000. (CoinMarketCap)

 

Additionally, Kruger mentioned the ‘Solana shitcoin mania’ as a contributing factor, suggesting the frenzy had gone too far. As reported, Solana-based meme coins have been on a roll, posting astronomical gains and unprecedented volatility on the back of an ongoing memecoin craze in the broader crypto market.

The analyst also highlighted the significant role of outflows from spot exchange-traded funds (ETFs) in the U.S.

On Monday, Grayscale Bitcoin Trust (GBTC) experienced a significant outflow of $643 million, marking its highest outflow since it transformed into an ETF on January 11.

The trend continued into Tuesday, as these products saw another $326.2 million in net outflows. Grayscale’s GBTC, in particular, experienced an outflow of $443 million. In contrast, ETF products from BlackRock and Fidelity recorded modest inflows of $75.2 million and $39.6 million, respectively.

BTC’s movements also played havoc with the altcoin market, leaving many investors holding coins other than BTC and ETH fearful about their holdings.

Fed Rate Decision Not Likely to Impact Crypto

The recent dip also comes as the market braces for the Federal Reserve’s rate decision this Wednesday, followed by Chairman Jerome Powell’s press conference.

Interest rate hikes make borrowing more expensive, which can slow economic growth and reduce liquidity in the market. This often leads to a decrease in risk appetite among investors, as they might move their investments from riskier assets, like cryptocurrencies, to safer, interest-bearing assets.

Conversely, when the Fed lowers interest rates, borrowing becomes cheaper, potentially stimulating economic growth and increasing risk appetite, which can drive investors towards cryptocurrencies in search of higher returns.

Ruslan Lienkha, chief of markets at Web3 fintech platform YouHodler, believes the “FED most likely will leave the rate unchanged.”

He told Techopedia that the decision won’t impact financial markets as well as the crypto market because investors are expecting the rate cut to start in the summer.

“However, it is important to listen carefully to Powell’s commentary – a hawkish rhetoric can adjust expectations and even provoke a correction in the markets.”

Lienkha added that the U.S. economy is doing well, but the current rates will continue to increase the pressure on the system. He stated:

“The main risk is still concentrated in the banking sector and commercial real estate. From my viewpoint, the ECB and BoE will not front-run the SEC; they will start to cut down rates either simultaneously or after the SEC.”

Outlook for Bitcoin Remains Optimistic

Despite the current downturn, the outlook for Bitcoin remains optimistic among many investors and market analysts. The approval of spot Bitcoin ETFs in January has sparked a new wave of investor interest in cryptocurrencies.

This is evident from record weekly inflows into digital asset investment products, totaling $2.9 billion last week. This influx has pushed the year-to-date inflows to an impressive $13.2 billion, according to CoinShares data.

Moreover, the upcoming Bitcoin halving event next month is anticipated to further bolster the cryptocurrency’s value. This event will halve the number of new tokens released, effectively tightening the supply amidst rising demand.

“BTC still remains in the long-term upward trend – despite the current correction, it has gained almost 50% since the beginning of 2024,” Lienkha said.

“Therefore, the upcoming halving and ETFs will continue to keep the price in the upward trend if the stock market stays calm or grows.”

20% Corrections Are Normal in Bull Market

It is worth noting that many analysts have also pointed out that 20% of corrections are normal in bull markets.

Pseudonymous crypto trader and analyst Moustache, with over 108k followers on X, said that following Bitcoin’s surge to its ATH in 2017, a correction period of 21 days ensued, which was then followed by a remarkable parabolic rally. Similarly, in 2020, after Bitcoin achieved a new ATH, a correction phase lasting 21 days unfolded before a parabolic rally.

Likewise, a CryptoQuant investor shared a chart representing the percentage of Bitcoin’s Realized Cap categorized into four different ‘age bands’ of unspent transaction outputs (UTXOs). These age bands represent the length of time that Bitcoin has remained unspent.

The Realized Cap is a metric that values each UTXO based on the price of Bitcoin when it was last moved, rather than the current price. It provides an alternative view of Bitcoin’s market capitalization by taking into account the actual prices at which coins last changed hands, rather than the current market price applied to all coins.

The chart shows that the younger age bands are growing, with a notable amount of Bitcoin moving after having been held for longer periods. However, this has yet to reach the highs of previous cycles, suggesting that the market is in the midst of a bull cycle.

The Bottom Line

The Bitcoin market has faced a setback with its significant price correction, with prices dropping by over 16% compared to its ATH achieved just last week.

Despite the downturn and market volatility, the outlook remains positive thanks to the influx of investments into digital assets and the positive anticipation surrounding the Bitcoin halving event. Expert analysis and historical patterns further imply that such corrections are a typical aspect of bull market cycles.

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