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We have been witnessing a big rally in cryptocurrencies since the start of 2021 and the popularity and demand for cryptocurrencies are increasing so fast. As it gained more popularity, we started to see some companies like Tesla accepting Bitcoins as a payment method as well as some online gambling providers like Crypto Casinos. The increasing demand created a belief that cryptocurrencies are bubbles that are going to pop soon and make people lose lots of money.
Whenever the market sees a pullback or correction, those people who think that cryptocurrencies are a scam go out of their caves and say the market has crashed and the bear market is here and the prices will drop soon. The market has seen lots of pullbacks during the rally and it still looks bullish as we see that it is recovering from the latest drop. Let’s have a close look at what happened in last week’s dump.
Price Action:
Last Wednesday, Bitcoin dipped to a $30k price level continuing the sell-off started and recovered from it within hours to $38k level. The other altcoins also saw like 50% drops during the day but all bounced from a certain price level.
Although it caused lots of people to lose money, it also created massive buying opportunities for those who had cash. The sharp drop caused Bitcoin to drop back to the price level where Tesla announced that the company bought $1.5 billion. In addition to this, Bitcoin dropped 50% since hitting its all-time high.
Possible Reasons:
Before the big dump, the market was already volatile because of the recent drop after Elon Musk’s tweet. Earlier Elon Musk announced that Tesla will accept Bitcoin as a payment method. But later on, he said that the mining process damages nature heavily and he decided not to accept Bitcoins.
The power of celebrities and influencers on the market at some point can be similar to manipulation. Previously Elon musk also created hype on Dogecoin and Dogecoin’s price increased dramatically.
Secondly, in the last couple of months, the pullbacks were happening towards the 20th day of the month and in those ones before the main drop, there has been a precursor. In the latest one, Elon Musk’s statement about mining and Tesla created the precursor, and then the main dump happened. Moreover, in those cases, the market tended to act sideways for some time and made its back up to the new all-time highs.
In addition to this, during the dump, a post on 4chan popped up saying that this drop happened on purpose and it had an aim to liquidate some certain people’s long positions. In the post, the writer was claiming that he is an insider and Bitcoin will make its way to the $30k price level and range there until the 23rd of May and then start to make its way up to the $70k region. The reliability of the post is low but until now it fits with reality.
The Recovery:
When the crypto market faces a correction, all the crypto doomers say that the market crashed, it was a scam and it is over. Yet, we experienced similar scenarios before and in those cases, the market recovered really quickly and as mentioned above made it to its new all-time highs.
Also, the volatility created a chance for traders to gain around 80% for several altcoins. Although the recovery is in the progress, it is better to watch out for China’s next step in cryptocurrencies since the country’s latest announcement about banning banks and payment institutions providing crypto-related services caused shock in the crypto market.
Moreover, during the drop, we see new institutional cryptocurrency purchases. Although the price dropped to the level where Tesla bought Bitcoins, it bounced back from that point to the $38k region. The Bitcoin dominance made its way down to 40% region and if it doesn’t go up, it is more likely for us to see an altcoin season, where Bitcoin mostly ranges and altcoins create massive gains for their investors.
Since dominance started to make its way down to this region, Ethereum price increased a lot as it is the second biggest cryptocurrency in the market value chart and it is likely to keep on its way up. In addition to Ethereum, other major altcoins like Cardano, ChainLink, Ripple, etc. created opportunities for 50% during the reaction.
Why is Crypto Still Powerful?
The corrections that the market faces regularly are good for the market. Otherwise, if the market constantly goes up, the bubble scenario is more likely to happen. Now after a correction, the market cools down and shapes itself for some time and it is ready for new marches to the new all-time highs.
Seeing new institutional purchases imply that people are waiting for good entry points to enter the market, which means that the market is more likely to grow. Even though the regulations come, it supports the idea of cryptocurrencies being the new form of money that we use in our daily lives because, in order to be in general use, states or economical entities need to validate cryptocurrencies as an economical device.
Conclusion:
As a result, from the start of the current rally, cryptocurrencies are getting more valuable and creating gains for their long-term investors. Big pullbacks were always good entry points and they are more likely to create benefits. In addition to this, the crypto world is directly related to technology and the blockchain system is open to transform itself so it will be able to change itself according to the problems it faces. This will increase the usage of the technology and the demand for cryptocurrencies as well.
However, it is important to keep in mind that the cryptocurrency market is quite volatile and prices can change really fast as we experienced earlier. It is possible to both make and lose lots of money and you should be taking your own decisions according to your own risk management.
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