What Factors Caused Bitcoin’s Latest Pullback?
Bitcoin prices have suffered some notable losses over the last few days, falling more than 25% between Friday and this morning as traders sold the digital asset.
The cryptocurrency dropped to as little as $30,305.30 at roughly 11:30 a.m. EST, according to CoinDesk data.
At this point, bitcoin was down more than 26% from the all-time high of $41,962.36 it reached on Friday, additional CoinDesk figures show.
The digital currency has experienced a meteoric rise over the last several months, rising from less than $3,900 in March to nearly $42,000 last week.
By generating these gains, bitcoin has climbed close to 1,000% in under a year.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
Several analysts spoke to this impressive rally, as well as its implications.
“The market has been overbought for months,” said Jeff Dorman, chief investment officer of asset manager Arca.
“No matter what metric you look at, it was overextended (Fear & Greed Index, put skew, leverage, spot/futures basis, etc).”
Jesse Proudman, CEO of crypto hedge fund Strix Leviathan, also weighed in, stating that “going into this past weekend, Bitcoin was up 45% YTD and nearly 300% over the last 3 months.”
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“Parabolic rallies like we just witnessed are not sustainable and are inevitably met with sharp reversals.”
Marouane Garcon, managing director of crypto-to-crypto derivatives platform Amulet, offered a similar point of view, stating that the market was “due for a correction.”
Some market observers spoke to the key role of sentiment, with Jason Lau, COO of cryptocurrency exchange OKCoin, stating that:
“In recent weeks, exuberance around BTC breaching new ATHs caused many traders to become overly bullish.”
“With the weekend dip below $39k, traders added to their positions, but a failure to break $40k led to cascading pullbacks.”
Chad Steinglass, head of trading at digital assets firm CrossTower, also spoke to the mindset of investors:
“In a market with high momentum, selling can beget selling just as easily as buying can lead to more buying.”
“As retail investors are reminded of the fact that prices can indeed go down and are not just a one way rocket ship, the mental perception of risk premium shifts and the fear of missing out gives way, at least marginally, to the fear of suffering losses,” he added.
“It remains to be seen if the start of the work week will bring with it enough support from new institutional money being put to work, combined with any potential ‘buy the dip’ retail players, to balance or overcome the sell interest.”
Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether and EOS.