What Broke Bitcoin’s Parabola? The Sell-Off Had Several Catalysts

We are still very much in a bull market; it’s just that the market heated up and needs to calm down before continuing higher.

Bitcoin is back above $36,000 after the biggest one-day pullback since March 2020.

“Today confirms that Bitcoin will probably not go up at the rate of 1500% per year for more than a month at a time,” quipped Miachel Saylor, CEO of MicroStrategy, which became the first publicly-traded company to replace cash with BTC in its balance sheet as a reserve asset.

The pullback over the past two days, Sunday and Monday, hit $11,875 (28.2%) from the high of $42,000 on Friday on Coinbase.

“It’s to be determined whether this is the start of a larger correction, but we have now seen this parabola break, so it might just be,” said Vijay Ayyar, head of business development at crypto exchange Luno.

With Bitcoin trading about 30% above its estimated fundamental floor, there's a lot of room for volatility, and this sell-off started on spot markets with BTC sent into exchanges and stablecoins moving out.

However, “the greater on-chain environment remains bullish,” said on-chain analyst Willy Woo. “This looks like a really healthy consolidation… (and) data fits a narrative of weak hands being shaken out.”

Still very much a bull market

The pullback occurred after a parabolic move. From the March low an over 1,000% uptrend occurred without any considerable correction.

And according to Matt Maley, the chief market strategist at Miller Tabak + Co. Bitcoin “will still have big declines of anywhere from 30-60%,” which is going to “happen more than once.”

The sell-off has been catalyzed by several factors, as per trader and economist Alex Kruger, who pointed to heavy selling from the miners and extreme funding on the derivatives platform. While renewed regulatory fears scared some easily, the old Tether FUD might have something to do with this too.

Even Guggenheim played a part in this who Kruger said they “want to buy lower.” The CIO Scott Minerd urged people on Twitter to sell off profits with the parabolic rally exhausted just ahead of getting greenlight from SEC for his GBTC investment. Minerd had previously said that the company had been wanting to buy Bitcoin when it was at $10k, and at $20k, it was becoming a lot more “challenging.”

In the macro scheme of things, as we reported, the greenback and real rates gained some strength, which first struck gold, and this week it was Bitcoin’s turn.

And this is of concern because “if those reversals are not temporary, it will be a problem,” said Kruger. For him, another concern could be miners, “who have been accumulating inventory for months and could later flood the market.”

Other than this, with Grayscale reopening private placements, open interest having dropped about 20%, and funding rates now flat to negative is bullish for the market.

“This is still a bull market. Bitcoin heats up very easily, and needs to wash up excesses before continuation.”

Alex Kruger Economist & Trader

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