Over the last couple of weeks, bitcoin has been enjoying a well-deserved bull run, characterized through rapid price increases within a short timeframe. During the last 30 days, the cryptocurrency has managed to surpass its previous all-time high of $20,000, thereby establishing a new record of $41,940. The market was quick to celebrate, gasping in awe.
Fuelling the Bull Run
The bull run was fuelled by an overflow of capital deriving from institutional investors, and further consolidated through ongoing retail investments. Many analysts warned that this was a bubble and that a price correction was imminent, whereas others were firm in their belief that the bull run was only getting started.
The Correction Is Here
Bitcoin has now seen its first correction, falling from $40,000 to a low of $30,468 in a matter of hours. As it always happens, a steep decline leads to panic selling while triggering stop loss orders on cryptocurrency trading platforms, and consequently encouraging further price drops.. Many are referring to the recent drop as a bear trap, but no analysts can accurately predict where the coin is headed next. This is uncharted territory for bitcoin, and it certainly shows.
At this point in time, bitcoin is seeing considerable volatility with sharp value increases followed by sharp drops. The price hasn’t yet found a consolidation point for the time being, so its value will likely remain dynamic during the next few days. This is far from being a market collapse, as the coin is still $10,000 above its previous all-time high.
Factors Leading to the Dip
Any and all dips are caused by market events negatively influencing the price. It is no different this time. Three events are believed to have triggered the recent price drop, as outlined below.
Firstly, it is very likely that a number of bitcoin whales decided to seize the opportunity and cash in on their long-term bitcoin holdings. This makes perfect sense - any long-term holder will have earned a profit by now, so a dump may be favourable from a financial standpoint. Secondly, the HSBC bank has decided to prohibit UK-based investors from transferring profits obtained via digital currency exchanges to their accounts. Last but not least, a UK regulator has issued an official warning stating that those who engage in speculative digital currency trading should be prepared to lose their entire holdings.
Together, these factors instilled a bearish sentiment. From a long-term perspective, bitcoin holders who refrain from selling will likely escape unaffected, with higher profits. After all, history is destined to repeat itself. If the $40K price point has been reached once, it’s more likely to be surpassed again. Overall, the cryptocurrency and blockchain markets are highly bullish at this time, with billions being poured into innovative projects and DeFi protocols.