Uncertainty Looms for Bitcoin Traders

VYSYN Ventures Weekly Insights #53 — The Bitcoin market has entered an extremely uncertain phase and traders need to tailor their risk appropriately

Bitcoin price is at a critical point. Over the past two weeks, Bitcoin has formed a consolidation pattern, raising uncertainties regarding its future direction. There are a myriad of conflicting opinions among market participants, causing confusion for the everyday retail investor.

We recently shared a Twitter thread to help retail investors navigate such uncertain territory. Read and share if you’re struggling to adjust to recent market developments.

In the latest VYSYN release, we analyze the key developments in Bitcoin market conditions. We also assess the recent behavior of some major players, whose actions have previously played a key role in driving Bitcoin price behavior.

Bitcoin Bullish Pressure Fades

(Source: Tradingview.com)

Bitcoin’s recent retracement has recorded an over 50% decline from peak to local low. Negative news played a significant role in spurring downside movements. For instance, Elon Musk announcing that Tesla would stop accepting Bitcoin payments catalyzed a 13% daily decline. China’s ban on cryptocurrency-related businesses shortly followed this development and further propelled the bearish momentum.

At the early stages of the crash in mid-April, many maintained their bullish outlook. Many newcomers were overexposed in their positions and relied on Bitcoin continuing to rise in price. When Bitcoin continued to decline, over $8.5 billion was liquidated from the cryptocurrency derivatives markets on May 19th as BTC dropped to $30k. Market speculators refuted the conflicting evidence that the market may be entering a downtrend and catastrophic losses were incurred as a result. Hundreds of millions and billions of USD value have been liquidated from the derivatives market on a daily basis as a result.

https://twitter.com/KVESTOR11/status/1401124360195174402

With the passing days and weeks, the bullish sentiment has been slowly dissipating. Recent consolidatory movements have put investors in an angst state and those with overleveraged bullish positions are anxiously anticipating a return to upside movements. Speculators have transitioned from a state of greed one month ago to one of extreme fear. Volume has dwindled below its 180-day moving average, corroborating the consolidatory market phase and making the future outlook more uncertain.

Bitcoin’s Previous Cycles

The bullish heights that Bitcoin has reached have occurred across several cycles. The first cycle spanned from 2012 to 2014 and saw Bitcoin increase from sub-$10 to over $1,000. A significant crash would follow and it would take Bitcoin roughly three years to return to the prices above $1,000. In 2017, Bitcoin increased from roughly $1,000 to a high of nearly $20,000. This would be ensued by prolonged bearish which saw BTC hit lows of below $4k. The most recent bullish cycle kicked off in October and has resulted in Bitcoin forming all-time highs of ~$65k.

(Source: Tradingview.com)

The extent of previous pullbacks highlights that Bitcoin could easily continue to decline. Investors need to tailor their exposure appropriately. Several peak-to-trough retracements of over 80% have occurred throughout the history of Bitcoin.

Corporate and Institutional Demand Shifts

The most recent bull run was largely initiated and sustained by the entry of corporates and institutional investors into the Bitcoin market. Microstrategy, Square, Tesla, and other big players entered the market with huge purchases. Significant capital entered the market and scrambled after a limited supply.

According to JP Morgan analysts, the buying appetite of this category of investors has diminished. The analysts note that Bitcoin funds are seeing outflows, while gold exchange-traded funds are seeing inflows. This suggests that institutional investors are shifting away from Bitcoin, and back into traditional gold. Grayscale, the largest exchange-traded Bitcoin product, has seen steady outflows over the past three months.

Bitcoin Market Prospects Remain Uncertain

As it stands, it is uncertain how the current stage of Bitcoin price consolidation will play out. On the one hand, Bitcoin has found strong buyer-liquidity after the decline to the low-$30k figures. However, it has also dropped significantly from the heights of over $60k and there are several anticipated resistance points that will come into play should prices begin to climb.

Regardless of the outcome, Bitcoin traders need to tailor their risk exposure appropriately. They must understand the risk they face in the event of significant movements in either direction. A wide variety of scenarios can unfold with the market. First and foremost, speculators need to ensure that their portfolio will not be busted in the event of wild movements.