This weekend, the bitcoin price fell below $20,000. This is not only a psychological barrier because it is a nice, round figure, but also the top of the bull run in 2017.
Meanwhile, the price has risen again by 7 percent, thus bringing its value to USD 20,400 (EUR 19,440) at the time of writing this article. Ethereum is also showing signs of recovery. Its value fell through the USD 1,000 mark but has rebounded today.
Bright spots during the battlefield
Looking back at the week before this recovery, one can only conclude that it has been a battlefield.
For seven days, the two crypto exchanges lost 34% and 36% respectively, until today’s recovery.
The low point was reached on Saturday when bitcoin was worth $17,772. A good time to buy, as the value has risen 15% since then.
Ethereum had a similarly strange weekend. The price plummeted to 898 USD but has since risen 25 percent since that temporary low. So even a bear market offers plenty of opportunities.
Do the gains of the past 24 hours signal a reversal of a downward trend? Or is this a classic bull trap?
Do not fall for it!
A bullish trap is bullish in the short term but bearish in the longer term. The bull trap lures buyers, causing the price to rise in the short term before eventually giving way to selling pressure and a falling price. In other words: false hope.
Most analysts expect that it will be some time before the pain stops. Yes, in the last 24 hours, someone has put a plaster on that festering wound, but that will only stop the bleeding for a short while.
Cascading effect from falling prices
Last Sunday, bitcoin fell below $26,000 for the first time in a year, a negative milestone that triggered a massive sell-off. This weekend, the price first fell below USD 20,000, then USD 19,000, and then USD 18,000, all in one day. Ethereum could not stay behind and fell fairly consistently with bitcoin.
According to the ‘experts,’ by falling below USD 20,000 and USD 1,000 respectively, many forced liquidations could occur. This means that parties will not be able to meet their collateral increases in certain loans and long positions in derivative products.
In such a scenario, large investors in both cryptocurrencies would be forced to close positions in BTC and ETH derivative products, with prices too low to generate sufficient collateral.
If this happens, it would cause more liquidations and push the price down even further. This cascade effect is also called a ‘long-squeeze’ because long positions are squeezed like a lemon.
Today’s rise was able to stop this (temporarily).
How long will the bear market last?
A few important questions are, of course:
- What will be the lowest price during this bear market?
- How long will the bear market last?
Unfortunately, we cannot answer both questions. The severity and duration of the bear market are unclear to everyone.
The current crypto-crash started at the beginning of last month when major currencies began to register losses, together with the stock market, and Terra began to show cracks. Since then, the crypto market has struggled to recover, with each new ripple effect of the crash causing further damage.
The latest casualties fell last week when crypto lending services Celsius and Babel froze withdrawals for all customers, citing possible liquidity problems.
The investment fund Three Arrows Capital may also be at risk of insolvency. As a result, many crypto companies may lose their money.
