A look at Bitcoin historical corrections
As Bitcoin and cryptocurrency markets continue to consolidate after wiping nearly one year of exponential growth in less than a week, the old-timer crypto HODL-ers (Hold On for Dear Life) reminisce about the previous market corrections and crashes.
If you haven’t followed the crypto markets, here’s the recap of what happened between the 18th and 23rd of May 2021.
- The global cryptocurrency market dipped over $600 billion through this week and has plummeted by 16.37% over the last 24 hours (as of 23rd of May, 2021). The global crypto market value hovers around $1.34 trillion after melting down from $2.06 trillion (as of 18th of May, 2021).
- The bloodbath hailed Black Wednesday, started on Wednesday the 19th of May, 2021. The world’s pioneer cryptocurrency (BTC) price fell from $43,334.60 to $32,061.61, a 30% drop in a few hours.
- Other cryptocurrencies’ prices followed suit as panic grappled the market, especially the newer investors. Ethereum, Dogecoin, and other altcoins nose-dived by more than 50%.
- The Wednesday dip alone vaporized about 30% of the crypto investors’ assets overnight as the BTC’s curve deepened. At the time of this writing, Bitcoin rebound passed a new tentative resistance line at $37,000 and briefly reached $40,000 to drop back down again (as of 26th of May 2021). Still, a far cry from its all-time-high $64,863 but consistent with a Wyckoff consolidation phase.
- Many traders blamed the Bitcoin drop on recent news from Chinese regulators and the tweets between Elon Musk and the Crypto community.
Previous Bitcoin corrections and crypto market crashes
However, as scary as it may seem for fledgling investors and traders, this is not the first time Bitcoin prices rose and then dropped significantly in a short period of time, nor is it the last. The question remains whether it’s already a crash that promises the beginning of the so-called crypto winter (a longer period of market stagnation) or just a market correction.
The cryptocurrency has gone through a number of crashes in its lifetime. The bigger hits usually followed Bitcoin (BTC). With major BTC losses, the less correlated assets like altcoins and currently also the new DeFi (Decentralized Finance) tokens begin to drop as well.
The crypto’s most significant plunge happened in January 2016 when the Bitcoin price dropped by 86.9%. It fell from $1,163 to $152, with the largest dip ever recorded. It then took three years before it bounced back to $1,350 in 2017.
2018 saw another massive 83.6% dip that started the most recent crypto winter, which we recovered just from in 2020/2021 when the current rally started.
Crypto Twitter vs. Elon Musk
Cryptomarkets remain volatile and speculative. Many investors believe the recent crash was partially caused by a Twitter row between Elon Musk and so-called Crypto Twitter. It refers to the crypto community on Twitter characterized by specific language, meme culture, and opinions, and often blamed for introducing volatility to cryptocurrency markets. Many crypto trading bots observe important accounts to execute trades based on tweets of crypto influencers and market disruptors, like in 2017/2018 McAffee and currently, Elon Musk.
The founder of Tesla and SpaceX exchanged multiple tweets with main crypto personalities on Twitter, seemingly enjoying the drama. He first stimulated the crypto markets promising BTC will an accepted payment method for Tesla Trucks. He also shared news about Tesla’s $1.5B investment in Bitcoin. He later changed his mind saying the company won’t be accepting Bitcoin due to environmental reasons. He also responded to Mr. Whale suggesting that Tesla could close its $1.5B Bitcoin position.
After Black Wednesday, he further taunted the community about his diamond hands, a phrase referring to investors who hold on to their BTC and altcoins during the panic sale. Many believe Elon should be investigated by the SEC for crypto market manipulation.
China crackdown on Bitcoin unsanctioned mining
Another reason for the recent correction could be the 19th of May announcements from the Chinese government widely considered a crypto ban after the somewhat misleading set of articles from Reuters.
Since the 2017 ICO boom, China has been taking various steps to limit cryptocurrency and bitcoin mining while leveraging blockchain technology for its central bank digital currency, the digital Yuan. The recent crackdown on Bitcoin unsanctioned mining and non-government regulated cryptocurrency exchange and securities trading is only a culmination of a 4-year trend.
It also wasn’t the first time countries banned or temporarily restricted crypto markets, sending prices into a temporary frenzy, like the 2018 India ban.
Technical Analysis predictions before and after the correction
Finally, many long-term crypto investors and traders predicted current drops using technical analysis (TA) price patterns — aka charts, way before the Elon or China news.
According to them, the price was always going to drop, and the current dip is a well-needed correction for an overvalued market bubble that grew too fast in 2021. Many see the support (the price below which Bitcoin will struggle to drop) between $30–35k. We already crossed both the $35k and $30k mark this week before rebounding back to $33k on the weekend (23rd of May). Currently, Bitcoin hovers near the new resistance line of $40k (as of 26th of May). Others suggest BTC could go as low as $20k during this cycle but is predicted to grow to $100k or more in the long-term.
Many Crypto Twitter amateur TAs suggested Bitcoin follows the Wyckoff distribution chart closely, However, some saw the current phase as a consolidation phase B that could take even a month before a renewed bull run, while others placed Bitcoin in the bearish phase D.
Whether this is only a short correction before a new rally or a start of another crypto winter, we can somewhat expect the cycle to repeat itself and the larger market cap coins like Bitcoin and Ethereum to recover in the longer time frame.
So far, the blockchain technology behind cryptocurrencies manages to fend for itself and even thrive in the bear markets as developers continue innovating and building new use cases and financial instruments, particularly within the open-source DeFi sector.
For more on the amazing Rise of DeFi read my Uniswap story on CryptoCanal.
About the author
I’m a cryptocurrency writer specializing in white papers and articles promoting various blockchain projects. I also help small startups and entrepreneurs structure their business goals and ideas.
My passion is translating tech to human to help fellow people like me who take longer to get it.
Favorite coin: currently BCH — just look at those fees.
Favorite DeFi token: Uniswap (UNI) — I love raspberry pink and Hayden Adams
Header photo by to André François McKenzie on Unsplash
Disclaimer
This is NOT investment advice. Do your own research and make your own choices :)
Originally published at https://www.linkedin.com.
