Bitcoin Price Could Massively Crash Like In May 2021, Warns Fund Manager
04 Juli 2024 - 10:05AM
NEWSBTC
Bitcoin’s price has fallen below the critical support level of
$60,000, reaching a low of $57,914. Since Tuesday, Bitcoin has
experienced a further 7% decline, reinforcing the ongoing downward
trend. Currently, market sentiment is shifting markedly towards the
bearish side. Is A May 2021-Style Bitcoin Crash Looming? Andrew
Kang, co-founder of Mechanism Capital, has raised significant
concerns regarding the pattern emerging in the Bitcoin market,
reminiscent of the conditions that led to the dramatic crash of May
2021. In a detailed analysis shared via X (formerly Twitter), Kang
highlighted the overlooked criticality of the current market
dynamics. Kang stated, “Most market participants are not
appreciating the significance of a potential loss of a 4-month
range on Bitcoin. The closest parallel we can draw is to that of
the range of May 2021 where we also came off a parabolic rally of
BTC and alts.” Related Reading: Longest Miner Capitulation Since
2022 Signals Potential Bitcoin Rally Ahead He noted the
similarities in market conditions, particularly in terms of
leveraged positions, which currently exceed $50 billion. “This
figure does not include the Chicago Mercantile Exchange (CME),
which is higher, but compounded by the fact that in this scenario
we have ranged even longer (18 weeks vs. 13), and we have not had
extreme washouts yet while we had a few in the middle of the
2020-2021 bull market,” Kang elaborated. Kang also adjusted his
projections for Bitcoin’s bottom, suggesting a steeper fall than
earlier anticipated: “It’s likely that my initial estimates of low
$50ks were too conservative and we see a more extreme reset to
$40ks.” He warned that such a pullback could significantly damage
the market, necessitating a few months of consolidation and a
downtrend before any reversal to an upward trend might be
conceivable. In a dialogue with Alex Krüger, a well-known macro and
crypto analyst, the discussion explored the intricacies of open
interest (OI) in the derivatives market, a crucial aspect of
understanding market sentiment and directional biases. Krüger
pointed out, “Much of that OI is not directional though,”
suggesting a more complex market behavior than straightforward long
and short positions. Related Reading: British Mega Bank Standard
Chartered Says Bitcoin Will Hit $100,000, Here’s When Responding,
Kang clarified the composition of OI, saying, “Each unit of OI is
one long + one short. Even if there are basis trade shorts on the
short leg, there’s a directional long on the other end. So yes…
less directional shorts.” The conversation further delved into
whether derivatives traders are delta neutral, which affects market
stability. Krüger queried about market maker positions, and Kang
responded, “I can assure you that there are not many market makers
in the OI that are delta neutral long perps and short spot paying
funding/borrow on both ends for a negative carry trade.” What
Happened In May 2021? This ongoing discussion among experts
reflects a deepening concern over the potential for a repeat of the
May 2021 crash. During that period, Bitcoin’s price plummeted
dramatically following a peak of around $64,000 in mid-April 2021.
By the end of June, it had lost about 56% of its value. This crash
was precipitated by a mix of factors, including regulatory
crackdowns in China, environmental concerns voiced by influential
figures like Tesla CEO Elon Musk, and a resulting cascade of panic
selling among both retail and institutional investors. In
retrospect, the May 2021 downturn was characterized by a rapid
shift in investor sentiment, driven by external shocks and
exacerbated by the high levels of leverage in the market. Today,
similar conditions could be forming according to Kang, with high
leverage and extended periods without significant price
corrections, suggesting that the market may be on the brink of
another severe downturn. At press time, BTC traded at $58,736.
Featured image created with DALL·E, chart from TradingView.com
Bitcoin (COIN:BTCUSD)
Historical Stock Chart
Von Jun 2024 bis Jul 2024
Bitcoin (COIN:BTCUSD)
Historical Stock Chart
Von Jul 2023 bis Jul 2024