End of the BITCOIN BULL RUN? 2021–2022
#CoinDCXpathbreaker
The year 2021 saw an insane bull market after the Bitcoin Halving and the 2020 COVID-19 Black Swan event in March, 2020. Bitcoin rallied from the lows of $3000 to its new ATH of $69,000…an approx gain of 19,750%. Yup, the run was crazy on Bitcoin and it was crazier on Alt coins. Everything popped and they popped hard! So is the Bull Run over? Was $69,000 the cycle top? Have we entered a year long bear market? Let’s study the theory better…
May 2021 was the first sign of a deep correction after that massive parabolic rally the market witnessed. In the above chart (exchange: CoinDCX), we see price hitting the highs of $65,000 and then in the next 2 weeks, we wiped out -50% of all our gains. Sweeping the lows of $29,000.
Why did this happen?
There were multiple narratives to the picture, some believe it was the China FUD about banning all crypto activity and declaring crypto mining illegal, some attribute it to Elon Musk declaring that Tesla will not be accepting Bitcoin as payment, and some say it was a general end of the Bull Run, but in reality it could be everything coming together at the same time like a nuclear bomb.
Now, I am not a conspiracy theorist, but a technical analyst and I come to conclusion either through charts or On-Chain data or both. Talking about On-Chain… it was a very well known fact that during this entire run up, there were huge amount of leverage positions open in the market. Some traders were sitting with heavy long positions from the March, 2020 Bottom and others who were late longers, opened very high-leverage positions. Funding rates were through the roof across all exchanges and the signs were right in front of us 🚩
People ignored the signs as every dip was around 20–30% (which is perceived as normal correction during a bull run) and majority of the big players were calling for $100k imminent and how retail traders should be taking out mortgages to buy Bitcoin. Why? Because Bitcoin will stop there 😏
The above chart shows us the BTC Futures Open Interest, simply put, the number of Leverage long positions open across exchanges. The value of these open positions were:
- Almost $27 Billion while price was above $60,000
In conditions like this, there is a huge disparity between Futures and Spot prices. There is a price imbalance, sentiments are running wild and funding rates were literally on the Moon 🌙
So when price began to decline and fall below certain levels, high-leverage positions started to close or get directly Liquidated. Simply put, traders started to face force closure due to price going below their liquidation levels.
This clearly reflected that people were doing some crazy degenerate trading and had leverage positions above 25x open, because if not, then price would not have plummeted the way it did.
This entire liquidation cascade started to have a snowball effect and the market started to experience huge sell pressure across the board and across all assets. This is what we call a Leverage flush in On-Chain terms.
But why such a move?
If you feel that price should not have fallen so sharply because exchanges have majority of retail traders. Well, you are right. Exchanges with futures trading have maximum retail traders and they might be holding small to big size positions, but imagine a bull run that has sucked in so much new blood to trading and when you add all their positions to the pool, it adds millions of dollars on the line and so much of that money getting liquidated levels after levels. Enough to move the market of any size.
FUD FUD FUD FUD
Fear, Uncertainty, Doubt= FUD. This had a major role to play in the entire scenario as well. Now, this is not technical analysis nor fundamental analysis nor On-Chain analysis. This is the most crucial part of trading and that is Sentimental trading.
Every Bull Run captures the attention of the newbie retail trader. Seeing the euphoric rise of crypto in 2017, many came in with Lambo dreams seeing BTC break ATH after ATH in 2021 and they wanted to seize this moment. Such sentiments in the market multiplied with GREED makes people do silly things. Traders across the board will pour in their life-savings, take on credit card debt, mortgage their house and sell their souls to make LIFE CHANGING MONEY in the Bull Run.
Enter the scene- FUD. Elon Musk tweets about Tesla officially stops accepting BTC as a payment = Market Panic.
China bans crypto for the 1000th time imminent the middle of a price uptrend= Market Panic
Some Whale moves 100 BTC from one wallet to another wallet= Market Panic
Couple all the above with sentiments, money people cannot afford to lose, high leverage positions and random buying = it’s a recipe for disaster. You have to understand, people sitting in spot positions even from previous ATH of $20,000 would have been comfortable with their spot holdings, but the new entrants with large leverage positions always end up longing the top and get REKT!
-50% normal?
Well crypto is a space where it goes up by 100x and then retraces by 60–80%. It’s normal, but it’s definitely not normal for the newbies. Every cycle in the lifespan of BTC has witnessed 80% drawdowns and more, but people need to be study the market behaviour instead of falling for tweets calling for a $1 million target before the year ends.
It is normal for price to go on a parabolic run, retrace sharply, consolidate and then make another run to new ATHs. This can also be called as a “Double Peak Cycle”
So why the second ATH?
Yeah, this has many perplexed as well. BTC ran all the way to $65,000 and retraces to the low of $29,000 and then again did a run up to $69,000 only to set that as the ATH and retrace back. That is some unusual behaviour by the king of crypto.
On the TA side, it makes very little sense because price should have gathered enough energy from its consolidation at $29,000 level and should have gone to much higher levels, beyond $69k. After this BTC just entered a boring choppy range and I believe we are still ranging at the time of writing this article (April, 2022)
Current Scenario
On-Chain data is showing a few wallets that belong to whales have taken profit, but on the other hand, even exchange balances are nearing their All Time Low. It’s contradictory in every way.
Open-interest of BTC Futures are also not showing any euphoric sign and the previous index number on the Fear & Greed parameter showed the death of all retail traders with sentiments at their lowest point.
Coupled with the uncertainty that the Russia-Ukraine war brought upon everyone, FED hiking rates across the board in USA and now with Russia getting inclined towards selling natural gas for Rubble instead of US Dollar in light of the sanctions imposed on them…Risk-on assets are not being viewed with a euphoric state of mind by traders around the globe.
I will not go all out and say that the Bull Run has ended, but I keep two scenarios in mind and will share it as my closing thoughts of this article.
BTC breaks my plotted Major Resistance line at $48,189 and we should start gearing up for a new ATH. Probably above $100,000
BTC falls below $42,000 after the current level of consolidation and we set a new All Time Low, around $24,000-$18,000 level.
A huge thank you to CoinDCX for giving me this opportunity to write such a detailed report and be a part of the #CoinDCXpathbreaker program, enabling me to share such knowledge with everyone in the crypto space.
