Quick Facts
Will Bitcoin’s Recent Rally End in a Downswing?
Bitcoin’s price has made a remarkable comeback, rebounding by 36% from its April 9 low of $74,500. However, despite this impressive recovery, many market observers are sounding the alarm, warning that the prices could drop sharply in the coming days. In this article, we’ll delve into the factors that could lead to a Bitcoin crash and explore some unique insights that may help you better understand the market.
Resistance at $106,000
One of the key obstacles that Bitcoin faces in its quest for new highs is the resistance zone between $106,000 and the all-time high of $109,000. When the price was rejected from this level on January 31, it dropped 27% to $78,000, indicating that bears are aggressively defending this area. In order to sustain the recovery, bulls need to produce a decisive daily candlestick close above this zone.
This chart pattern is supported by the long position liquidations data from CoinGlass, which shows a wall of ask orders building up above $106,000. Failure to clear this resistance could lead to a pullback, with the accompanying long position liquidations pulling the price toward the year open at $93,000.
Over 97% of Bitcoin Holders Are Now in Profit
Another important factor that could contribute to a price drop is the high percentage of holders who are now in profit. According to data from CryptoQuant, less than 2.8% of Bitcoin investors were still in a position of loss on May 15, subsequently accounting for 97% of the supply in profit. This high number of holders in profit is often seen as a sign of an overheated market, which typically precedes or coincides with price corrections.
As more investors choose to book profits, the selling pressure could intensify, leading to a sharp correction in the price. This dynamic is reminiscent of the market dynamics seen in late January, when Bitcoin’s price dropped almost 16% within seven days, setting a swing low at $91,530.
High Open Interest
Another metric that could indicate a potential price drop is the high open interest on Bitcoin derivatives. Open interest (OI) hit a near-record high of $67.5 billion on May 14, as Bitcoin came close to overcoming the resistance at $106,000. This suggests that there is a significant amount of long positions that could be liquidated if the price were to drop.
Pseudonymous trader Adam noted that Bitcoin is starting to look pretty exhausted here, open interest caught up to the approximate levels of prior all-time high. He added that he thinks the move from $80,000 was significant enough not to see new lows, but this is not the place where he would open fresh longs.
The Psychology of a Crash
Crashes are often the result of psychological and emotional factors rather than fundamental changes in the underlying economics of an asset. Many investors may be feeling a sense of euphoria after the recent rally and may be hesitant to take profits or even raise their stop losses. This could lead to a prolonged period of accumulation, which could support the price in the short term.
However, as the price approaches the all-time high, investors may become more cautious and begin to take profits, leading to a sharp correction. This is because the market tends to be extremely sensitive to changes in sentiment and the price of an asset.
Disclaimer
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
