Why the 25% drop was the bottom for Bitcoin
The ongoing Bitcoin price rally has most traders stopping and staring at their portfolios, refreshing their windows every few minutes to capture the unrealized profit/loss. Understandably, the thrill of the price rally is accompanied by the fear of losing out on unrealized profits.
With Bitcoin’s price dropping over the past few trading sessions, several wallets incurred an unrealized loss, unlike the first time when the crypto’s price crossed its previous ATH and surged beyond the $20,000-level. Comparing the latest Bitcoin drop to previous ones, two interesting conclusions stand out, however,
– The latest drop was 25% from the top (Considering data from CoinMarketCap – $41,405 on 8 January and $30,838 on 11 January)
– We hit the bottom in 3 days; is this it?
This may not be a significant dip when compared to 2017, which is why that leaves room for a further drop in price. But, is this it for the current market cycle? Then, what does the aforementioned drop compare to? The drop of 25% compares to the drops that were observed during the second Bitcoin halving, based on this chart by Ecoinometrics.
The week started off on a bearish note, and at the time of writing, Bitcoin was trading at $35,628, still nearly $6,000 away from its ATH above $41,000. While the price rally is on, it may have temporarily come to a halt. The 25% drop may be the biggest drop in the current market cycle, and it may be rock bottom.
There is a very low likelihood of a drop below $30,000, and in that case, there is no room for a further drop. In fact, the drop may not be as dramatic as anticipated when compared to Black Thursday of March 2020, a time when the price dropped by over 50% within a few hours.
The fact of the matter is that Bitcoin has a long history of drawdowns, and the latest one is not as significant when compared to others. The drawdown of the post-2017 bull run was drastic, with BTC hitting a bottom of $3,000 within months of an ATH above $19,000.
The exciting part here is that the price drop didn’t seem to deter institutions or traders on spot exchanges from buying. With the cryptocurrency’s price yet to successfully breach its previous ATH again, this 25% drop may be it for the current phase of the bull run.
This is significant for the portfolio of derivatives traders waiting to open a new long or short position since a lot of strategizing involves planning on not getting liquidated. If the drop of 25% is it for Bitcoin, then the next phase will possibly consider $30,000 as the starting point. Opening shorts in a volatile market where the bottom was in a few days ago this week may not give the expected returns. This would have a critical impact on traders’ sentiment and portfolios on derivatives exchanges.