Expert Says Bitcoin’s ‘Very Healthy’ Correction ‘Sets the Stage for More Steady Growth’

Bitcoin and the broader cryptocurrency market bounced back on late April 22, as an intense sell-off sent (BTC) prices below $48,000, a move that eased concerns among quantitative analysts such as PlanB who feared the price rally was inorganic.

Multiple factors have been identified as contributing to the price drop, including overcrowded futures markets and heavy selling activity from small and medium-sized whales. In addition to whale activity in the crypto market, the most influential development has been a proposal from U.S. President Joe Biden’s administration to increase capital gains taxes for individuals earning more than $1 million per year.

Data from Cointelegraph Markets and TradingView show that selling led to a break below the $50,000 support level for Bitcoin on April 23, with a few courageous buyers dropping prices to a low of $47,500 before a heavy wave arrived to lift back above $49,000.

The drop below $50,000 represents a 25% drop from its recent all-time high, with Bitcoin now trading at levels last seen in early March.

Bitcoin inflows to exchanges precede economic downturn

When asked about the price action on April 22, Micah Spruill, managing partner and chief investment officer at S2F Capital, said the sell-off “seems to be an attempt to peg price below the critical $50,000 level where a large number of put options are expiring in the money.”

Spruill noted that “bearish net inflows of BTC moving to exchanges” is a possible catalyst “taking us down to the next level of on-chain support (around $47,500),” and highlighted the fact that “most of the coins moving on-chain during this recent sell-off are recently acquired coins, not long-term holdings.”

According to Élie Le Rest, partner at digital asset management firm ExoAlpha, being able to hold current price levels “will confirm the accumulation pattern of institutional investors at or below $50,000, creating room for Bitcoin growth in the coming weeks/months.”

If prices fall further, Le Rest identified $43,000 as the next strong support level, and he highlighted the fact that when BTC last traded within this range in February, altcoins really began to “boom.”

“A return to this level could cause a major blow to the altcoin markets as they would lose all their recent gains,” Le Rest said, potentially causing Bitcoin’s dominance to rise back above 60%.

Le Rest said:

“Either way, this market pullback is very healthy as it helps deleverage market participants and sets the stage for more stable growth.”

Traders rush to export

To better understand the rapid sell-off in Bitcoin’s price, Jarvis Labs co-founder Ben Lilly offered a metaphor, suggesting that traders are like passengers on a boat, describing the “spontaneous synchrony” that occurs.

Lilly said:

"When the boat starts to tilt, first a few people tilt. The more it tilts, more people tilt too. Then bam, it tips..."

Lilly noted that traders have used this opportunity in the past to profit from this downturn, including “selling altcoin euphoria” and profiting from futures arbitrage trading. He also highlighted the fact that in this case, capital was used to short rather than buy.

On-chain analytics firm Whalemap published the following tweet, highlighting the importance of the $55,000 level to show how quickly the market sold off, catching even institutional traders off guard.

55k should be the bottom. 263k BTC flowed into whale wallets at this price. In the future, this could be trouble territory for BTC. But let's see what happens. For now, we are in support. pic.twitter.com/Ooo20xlYzq

— whalemap (@whale_map) April 23, 2021

As for what analysts think about buying BTC below $50,000, Whalemap published the following chart and said:

“Losses are higher than profits at every turn. Historically, this has been a good buying opportunity.”

The market now anxiously awaits the next major change in Bitcoin’s price to help determine if this is merely an overdue correction, leading to the continuation of the bull run or the start of the next bear cycle.

Altcoin prices plummet

Bitcoin’s drawdown hit the altcoin market particularly hard, causing most of the top 100 tokens to post double-digit losses.

Ethereum (ETH), the top altcoin by market cap, has been hit hard, with its price at the time of writing down by more than 12% from its all-time high of $2,640 on April 22. Meanwhile, XRP and DOGE are the worst-hit coins in the top ten, with their prices down by more than 20%.

Three notable exceptions to the current sell-off include Compound’s COMP, WAVES, and Helium’s HNT, which have defied the sell-off by achieving gains of 13%, 9%, and 8%, respectively, at the time of writing.

Currently, the entire cryptocurrency market cap stands at $1.862 trillion, with Bitcoin’s dominance rate at 50.7%.