Bitcoin price fell below critical support of $60,000. It reached a new low of $57,914. Bitcoin’s price has fallen by 7% since Tuesday. This reinforces the downward trend. Market sentiment has shifted to the negative side.
Bitcoin: A Crash Similar to May 2021 is Coming?
Andrew Kang is the co-founder and CEO of Mechanism Capital. raised There are serious concerns about the Bitcoin pattern that is emerging, which reminds us of the circumstances leading to the crash in May 2021. Kang, in a detailed report shared on X (formerly Twitter), highlighted the critical nature of current market dynamics.
Kang declared “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.”
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He brought up the similarity in conditions in markets, especially in leveraged positions which are currently exceeding $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 adjusted his forecasts of Bitcoin’s fall, suggesting that it would be steeper than he had originally anticipated. “It’s likely that my initial estimates of low $50ks were too conservative and we see a more extreme reset to $40ks.” He said that a market pullback would be detrimental to the economy, and that it might take several months for a downward trend before a reversal of an upward trend is possible.
In a dialogue with Alex Krüger, a well-known macro and crypto analyst, the discussion explored the intricacies of open interest (OI) Understanding market sentiment is key to understanding the direction of biases in derivatives. Krüger pointed out, “Much of that OI is not directional though,” The market’s behavior is more complicated than simple positions long or short.
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Kang replied by clarifying that OI is composed of two components: “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.” Conversations continued to explore whether or not derivatives traders were delta-neutral, and how that affected 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?
The ongoing conversation amongst experts is a reflection of a growing concern about the possibility that the crash in May 2021 could repeat itself. Bitcoin’s value plummeted during that time after peaking at around $64,000 mid-April, 2021. At the end June it was down 56%. A combination of factors led to this crash, including the regulatory aspect. crackdowns in China, Environmental concerns raised by influential figures Tesla CEO Elon MuskThis has led to a cascade of panic sales among retail investors and institutions.
Retrospectively, the downturn of May 2021 was marked by an abrupt shift in investor attitudes, driven by shocks from outside and made worse by high leverage levels in the market. Kang says that today similar conditions may exist, including high leverage, extended periods of time without price corrections and a lack of significant changes in the stock market. This could mean the markets are on the verge of another downturn.
BTC is currently trading for $58,736.
Featured image created with DALL·E, chart from TradingView.com
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Source: www.newsbtc.com
