Caution, The Crypto Sector Is Getting A Bit Overheated In The Short-Term

It’s been a massive rally over the last 15 months in the crypto sector since bitcoin (BITCOMP) bottomed at US$3,800 on March 13, 2020 till reaching a high of US$65,000 earlier this year. That is a price explosion of more than 1,600%! Now, it's pullback time.


Bitcoin year to date, Daily Chart as of May 10th, 2021. Source: Tradingview. Bitcoin - Caution, the crypto sector is getting a bit overheated in the short-term.

Bitcoin year to date, Daily Chart as of May 10th, 2021. Source: Tradingview

Since the beginning of the year, the price of Bitcoin has increased by almost 100%. Thus, the outperformance of Bitcoin compared to almost all other asset classes continued mercilessly. It seems as if bitcoin, or rather the crypto sector, wants to suck up everything like a black hole.

Bitcoin´s waning momentum is a warning signal

However, the Bitcoin markets have also been witnessing an increasingly waning momentum since late February. In particular, the pace of the rise had slowed down more and more since prices pushed above US$60,000 in March for the first time. Although another new all-time high was reached on April 14th at around US$65,000, the bulls are showing more and more signs of fatigue after the spectacular rally. Interestingly enough, this last new all-time high coincided exactly with the stock market debut of Coinbase.

Only a few days later, a significant price slide down to just under US$50,000 happened, which was caused by a huge wave of liquidations. According to data provider Bybt, traders lost a total of more than US$10.1 billion that Sunday through liquidations forced by crypto exchanges. More than 90% of the funds liquidated that day came from bullish bets on Bitcoin or other digital currencies. In this regard, the world’s largest crypto exchange Binance was at the center of the earthquake with liquidation worth nearly US$5 billion. As the price of bitcoin fell, many of these bets were automatically liquidated, putting further pressure on the price and leading to a vicious cycle of further liquidations. Many (especially inexperienced) crypto traders were wiped out without warning.

Year to date gains sorted by market-cap. Source Messari May 10th 2021.

Year to date gains sorted by market-cap. Source Messari, May 10th 2021.

After a quick recovery back to US$56,000, bitcoin continued its correction and fell back to US$47,000 by April 25. Since then, it has managed a remarkable recovery, as the bitcoin bulls are trying hard to restart the uptrend. So far, this recovery has at least reached a high of US$59,600. Nevertheless, the price development of bitcoin remains rather tough until recently, while numerous altcoins and so called “shitcoins” experienced incredible price explosions in recent weeks.

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Disclaimer: All published information represents the opinion and analysis of Mr Florian Grummes & his partners, based on data available to him, at the time of writing. Mr. Grummes’s ...

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