You may be wondering why the Bitcoin which hit $42,000 on Saturday now dropped to $35,000 within 48 hours.
For those who are used to the cryptocurrency market trends, there is no reason to worry because they know that there are some factors responsible for the drop in the value of Bitcoin.
Below are some factors responsible for the decline in Bitcoin price.
Bitcoin’s rally on December 30, 2020, from $28972.4 to $42,000 seen over the past days looked overstretched on the technical charts.
The momentum was so strong that the cryptocurrency consistently traded above its 10-day moving average (MA) throughout the ascent, despite an overbought reading on the 14-day relative strength index (RSI).
Assets seldom see a 90-degree rally, as speculators tend to book profits at regular intervals, pushing prices down to their short-term moving averages. The cryptocurrency has seen several pullbacks of 20% or more during the previous bull markets.
The price drop seen today has taken the cryptocurrency well below its 10-day average and allowed the RSI to realign in a more bull friendly-manner. It’s a healthy pullback.
Some traders had positioned for the pullback by buying put options, or bearish bets, as noted by Deribit Insights.
On November 30, 2020, a trader and analyst Alex Kruger, Coinbase CEO Brian Armstrong’s tweet thread about the U.S. Treasury Department’s rumoured plans to track owners of self-hosted cryptocurrency wallets weakened the bullish move, allowing a price pullback. But for now, there are no such reasons that warrant the drop in price bitcoin price.
The path of least resistance for bitcoin remains on the higher side. “The latest price drop is a noise against the larger bullish trend,” Kruger said.
Indeed, bullish macro factors such as increased institutional participation, record money printing by central banks, and the search for yield remain intact despite the price drop.