On December 20, following an 18 percent increase in price within a four-day period, the price of Bitcoin surpassed $4,000.
The unforeseen recovery of Bitcoin from the mid-$3,000 region to over $4,000 was accompanied by a spike in daily volume, which at its daily peak reached $9 billion.
What Triggered Bitcoin to Undergo a Corrective Rally?
Since the first week of this month, the value of Bitcoin fell from $4,400 to $3,100, by nearly 30 percent against the U.S. dollar.
Throughout the downtrend, the daily volume of the dominant cryptocurrency averaged at around $3.5 to $4 billion. The low volume of the asset during one of the most intense sell-offs in 2018 suggests that Bitcoin was free falling without significant sell volume.
But, as Bitcoin approached the $3,000 support level, buy walls on major crypto-to-fiat exchanges such as Coinbase and Bitstamp began to build up.
Su Zhu, the chief investment officer of Three Arrows Capital, said on December 11:
“10% down from here (3.3k), buy walls on Coinbase are now the largest (in BTC notional ) since mid-2015. Similar for Bitstamp.”
On Tuesday, as Bitcoin demonstrated signs of potential recovery, the analyst confirmed that the buy walls on Coinbase and Bitstamp were real and contributed to the corrective rally of most major crypto assets.
The low price range of Bitcoin appealed to many existing investors in the cryptocurrency market including Mark Dow, a trader who shorted Bitcoin since its all-time high at $19,500.
Speaking to Bloomberg, Dow said he has exited his short contract, emphasizing that a right time has come to put an end to his 12-month trade.
“I’m done. I don’t want to try to ride this thing to zero. I don’t want to try to squeeze more out of the lemon. I don’t want to think about it. It seemed like the right time,” he said.
Possibly Not the Bottom, But a Low Enough Range
Throughout the past 12 months, Bitcoin experienced some major corrective rallies, one of which led to a 20 percent increase in price within a 24-hour period.
Short contract holders like Dow likely exited their positions recognizing $3,000 to $4,000 range as a short-term bottom for Bitcoin. Historically, Bitcoin has tended to drop by around 85 percent in every correction and at $3,200, Bitcoin dropped by over 84 percent from its all-time high.
It is not possible to exactly predict the right bottom of an asset unless it goes through a several-month-long consolidation period. But, the dominant cryptocurrency has reached a low enough range for traders that shorted the asset from its peak, to exit their contracts, and for existing investors to begin accumulating the asset.
Throughout the past three days, the crypto market has added $33 billion to its valuation in a strong corrective rally. In the weeks to come, analysts generally believe that the price of most cryptocurrencies will remain highly volatile in a wide range and that a proper rally has not begun just yet.
One cryptocurrency trader with the online alias “DonAlt” said that the bear market has not come to an end just yet, suggesting that months of stability and consolidation are required to confirm a proper bottom for the asset.
“By the way, this is not the place to start buying. A full year bear market doesn’t just go away like this, it’ll take time. Even if BTC goes to 4270~ I’ll only be looking to short/close longs. We’re still in a bear market, BTC is just rightfully punishing late bears.”
Still, analysts generally agree with the sentiment that Bitcoin is approaching the final stage of a bear market, establishing strong support levels in a low price range.
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