Bitcoin failed to defend the $40,000 level and plunged to as low as $30,000 Monday.
The dominant cryptocurrency retreated to just above $30,000 Monday before closing at $35,452. It’s the third straight red candle after Bitcoin went as high as $42,000 on Jan. 8, its new all-time high. It plummeted more than 20% in the last three days.
Antoni Trenchev, CEO of Nexo, said the drop might be because of retail investors looking to take some profits off the market. “Once BTC passed $40k, earnings were at a height that triggered smaller investors who are, understandably, more prone to selling quickly,” Trenchev told Cointelegraph.
The move came after Bitcoin went on to breach past its previous psychological resistance of $20,000 last December. After that, the rally went parabolic, and the price slump in the last three days was the first time it retraced by more than 20%.
There is potential for an upside move because the pullback is deemed “necessary” to remove the exhaustion in the market, Trenchev said. “Every year since 2013 has seen a ‘crash’ of around 25% of a pear earlier in the same year,” he added, noting that these retracements were an important market behavior.
The recent bull run was said to be different from the 2017 mania. While the rise in value in 2017 was driven by retail investors looking for profit, 2020 had more institutional investor participation. Institutions like MassMutual and Guggenheim, as well as public companies like Square and MicroStrategy invested in Bitcoin recently.
Analysts said institutions are looking at the cryptocurrency as a long-term investment and are not interested to make a quick profit from 20% price moves. Guggenheim CEO Scott Minerd, in an interview with Bloomberg last month, predicted Bitcoin’s value would go up to $400,000. Bitcoin was trading above $20,000 at the time.
Trenchev says market participants should observe retail activity because this segment is the one that will likely sell, and if they do, it is a sign that the market has reached its top. “Many will panic, take their profit, and walk away — which can have a domino effect on the rest of the market,” Trenchev concluded.
Bitcoin Price Plunges 20% In 3 Days: What Happened? The British Journal Editors and Wire Services/ International Business Times.