Bitcoin prices bounced back this morning, experiencing some gains after their weekend sell-off. … [+]
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Bitcoin prices have recovered recently, climbing more than 10% from their recent low, after suffering a notable decline over the weekend.
The world’s most prominent digital currency reached as much as $57,609.37 this morning, CoinDesk data shows.
At this point, it had risen 10.5% from the local low of $52,148.98 it hit on Sunday, additional CoinDesk figures reveal.
The cryptocurrency experienced a notable drop over the weekend, losing roughly 16.6% of its value in short order.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
When explaining this correction, analysts cited several variables, including a sharp decline in bitcoin’s hash rate, traders’ high use of leverage and the low liquidity that typically exists during weekends.
“It wasn’t at all surprising to see a drop like the one we had over the weekend,” said Joel Kruger, cryptocurrency strategist at LMAX Digital.
“With that said, we’re obviously also not surprised to see the market quickly finding its feet as liquidity returns,” he added.
Amber Ghaddar, co-founder of decentralized capital marketplace AllianceBlock, shed some further light on the matter.
She started off by citing a tweet containing unsubstantiated claims that the U.S. Department of Treasury plans to “charge several financial institutions for money laundering using cryptocurrencies.” The tweet cited “sources,” but did not provide any additional detail.
Ghaddar elaborated on the causes behind bitcoin’s weekend drop, stating:
“This was followed by a second tweet where they correctly linked the sell-off to miners going offline in Xinjiang region in China due to a grid blackout. This blackout contributed to bringing the hashrate down by close to 50%.”
“However, despite the false allegation, the slump in hashrate, miners selling 9K bitcoin and the relative lack of liquidity on weekends, the market shouldn't have sold off as much,” she added.
“The real culprit is linked to margin trading where we saw circa $8bn in liquidation in around 1,000,000 different trading accounts,” said Ghaddar.
In spite of all this, she emphasized the positive developments that have taken place since the decline.
“The fundamentals have not changed and the market is recovering swiftly,” she noted.
“Prior to this correction many of our onchain indicators were in the red, indicating that BTC was trading at a high premium relative to Fair Value. The current correction has brought back a substantial number of our onchain indicators into the green.”
Chad Steinglass, head of trading at digital assets firm CrossTower, also weighed on bitcoin’s weekend drop, as well as its recovery.
“When the market gets spooked during a time of low liquidity, like it did in the middle of the night on Saturday night, that generally creates an oversold situation from which at least somewhat of a bounce back can be expected as long as the dip doesn't create a contagion effect,” he stated.
“The sharp move lower in bitcoin over the weekend was a bit of a wakeup call to investors that might have been lulled into a bit of a sense of complacency due to the tighter ranges and lower volatility that BTC has been exhibiting over the past 2 months,” said Steinglass.
“The selloff occurred during a time that I consider to be the lowest liquidity during the week, with some natural negative pressure being exacerbated by several negative rumors that all circulated around the same time.”
However, now that the pullback is over, Steinglass offered a bullish take.
“The support and bounce back is encouraging and indicates that the long underlying trend of increased confidence and increased institutional adoption has not disappeared.”
“Many long levered retail positions got flushed out and liquidated during the selloff, and overall leverage has come down,” he stated.
“It remains to be seen how much confidence will be shaken by the weekend dip, but if support holds and prices continue to stabilize or rise, I will take that as a sign that the market is shaking off the shock without much difficulty,” Steinglass concluded.
Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether and EOS.
