China FUD Causes Massive Liquidation of $ 600 Million, Has Bitcoin Price Bottomed?
Just as Bitcoin rose slightly above $ 45,000 on Friday, news that China’s central bank banned its citizens from trading cryptocurrencies at press time led to the liquidation of over $ 600 million in derivatives positions.
It’s important to remember that massive liquidation tends to trigger a flurry of sell orders, creating a short-term imbalance between supply and demand. In these cases, supply exceeds demand and prices fall until the next big bid is made.
Despite the short-term volatility, the overall trend in fundamentals and on-chain metrics remains solidly bullish as long-term owners and miners continue to operate HODL. On the contrary, “weak hands” and traders who own “young” coins panic. This is the reality that happened today during the two day sell off.
The latest Chinese FUD to ban crypto trading appears to be the “old wine in a new bottle,” announced on September 3, 2021. In light of the $ 4 billion liquidation event that happened on Jan.
Michael Saylor, CEO of MicroStrategy, explain:
“Nothing has created so much wealth in the last ten years as the technologies banned in China.
Jon Geenty, a data scientist at analytics firm CoinMetrics, provided a comparison chart showing how Bitcoin fares after every Chinese “ban narrative.” Contrary to fears, the share price development actually remained unchanged after such events.
BTC price change 60 days before and after previous Chinese “ban” events pic.twitter.com/uyGTxB9iuJ
– Jon Geenty (@geenty) September 24, 2021
“The BTC price changes before and after 60 days during previous Chinese ‘prohibition’ events.”
Bitcoin price is trying to bottom out
Recent volatility and massive liquidations pushed BTC to a weekly low of $ 39,500 on Tuesday, coinciding with a major Fibonacci retracement. So far, this technical structure represents a pullback from USD 52,900 to USD 39,500 as a correction of wave 2 (according to Elliot Waves).
According to the Elliot wave structure, the corrections consist of 3 waves moving downwards. Many technical analysts call this the ABC correction, where A is the initial decline, B is the push-up, and C is the final decline.
For the short term, Bitcoin price must hold wave C low at $ 39,500. So far, BTC has bounced back, making a higher low at $ 40,700. This is also a confluence of technical support with the lower Bollinger Bands on the daily chart.
If BTC can successfully hold a higher low at $ 40,700 and hit a higher high above $ 45,200, it will further increase the likelihood of completing wave 2.
In the short term, the technical structure suggests that a conclusion of wave 2 will usher in a larger wave 3, which tends to be a wave that drives prices up significantly. This depends on whether BTC can defend a higher low at $ 40,700 and the weekly low at $ 39,500.
Although the short-term charts look bearish, the long-term charts are still bullish, especially as price clings to a larger structure. BTC managed to keep support at the top of the $ 30,000-40,000 range in June, hitting a higher low since the $ 29,200 low in July.
Accumulation model Wyckoff extend GEASY level
The Wyckoff accumulation pattern appears to expand in Phase D, which is a consolidation phase. This phase precedes phase E, in which the price is pushed up significantly. Multiple liquidations and suspiciously well-timed FUDs pushed BTC below $ 50,000.
Trading volume spiked as BTC tested key technical support levels around $ 40,000, suggesting larger buyers have stepped in. Despite the deeper than expected pullback, BTC is still making a higher low (on a lower timeframe). To maintain the larger tech structure, BTC must hold between $ 41,300 and $ 40,000 of support weekly.
On-chain data bullish signal
Much of the recent sales are due to leveraged liquidations and panic sales of younger coins, mostly those that are 3 months old and younger. Overall, older coins still tend to pile up and show no interest in bearish sales.
Since the price peaked at $ 52,900, the mineral reserves have been trending down to around 6,600 BTC. That sounds like a huge amount of BTC, but it’s only 6,600 BTC out of the miners’ total reserves of 1,850,000 BTC.
Bitcoin miners’ reserves remained above equilibrium in January 2021, suggesting that they are regularly selling small amounts of BTC, but the overall trend does not present much selling pressure compared to the bear market.
CryptoQuant’s average coin age index continues to trend upward despite falling prices. This confirms that the long-term holders continue to accumulate and HODL while the “weak hands” sell.
The volatility throughout 2021, multiple liquidation events, consistent FUD, and deep declines didn’t have a material impact on the long-term owners. This shows that HODLers who have held BTC for years are becoming familiar with their positions even with wild swings and massive liquidations.
The cumulative behavior (observable in the chain) clearly shows that long-term owners and entities holding older coins have strong faith in Bitcoin and will refuse to sell if the price drops sharply. As these units continue to pile up, there will be less BTC available for sale on the exchanges, further depleting the supply.
This is also reflected in the foreign exchange spot reserves, which, despite the recent volatility, keep reaching new multi-year lows. Foreign exchange reserves have dropped 12,500 BTC since the price peaked at $ 52,900 and began the retreat. Based on this data, it is clear that investors are buying dips and pulling BTC off the exchanges.
Bitcoin is about to close an important week
Bitcoin briefly fell below $ 42,000 on September 25 as the weekend seemed to offer a nondescript weekly close.
diagram BTC 1 hour | The source: TradingView
Data from TradingView shows that BTC loses $ 1,000 in just over an hour before going up again.
The weekend started at around $ 43,000 – a key level that some say should hold as the week closes.
It’s worth noting that BTC is still trading above $ 41,300 and $ 40,000 as it prepares to close for the weekend. In the short term, it should hold $ 40,700 to hit a higher low, which is the next step to complete a wave 2 pullback.
There could be other liquidations as well, bringing BTC up to $ 39,500. A break below $ 39,500 could push BTC to significant support levels at $ 38,600, $ 38,300, and $ 37,300.
That would be a less than ideal scenario for the bulls, especially as BTC is nearing an important close of the week. When a liquidation wick drops to highs in the $ 30.00 area, it is important that the price rise above $ 40,000 to maintain the larger engineering structure.
Analyst Michael van de Poppe tweets yesterday this:
“The critical level for Bitcoin remains unchanged, in the range of 38,000 to 40,000 US dollars, I would like to keep it. If everything is successful. “
In summary, the short-term charts look cautious, but the long-term charts as well as the overall trend of fundamentals and on-chain are still bullish as long-term owners, miners and organizations remain optimistic and show no signs of selling. BTC remains well positioned for a strong rally to new all-time highs later this year.
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