Several factors point to an upcoming correction, what will be instructive for next year’s flows would be whether institutions “buy on a potential dip.”
Bitcoin vaulted above $29,000 to hit yet another record high with just one day left to end 2020. But it is showing no signs of slowing down its crazy December rally that has it up over 50% this month.
The digital asset climbed as high as $29,275 before pulling back to $28,045 but is now just above $28k.
And with these gains came over $540 billion market cap which helped Bitcoin flip its skeptic Warren Buffett’s Berkshire Hathaway and become the 10th largest asset by market capitalization.
Interestingly, while volume on Wall Street is winding down due to the holidays, crypto volumes are seeing record-breaking levels.
As Paul Vigna, a reporter at the Wall Street Journal noted, in his 3-decade experience covering financial markets, he has “never seen a group of people so insanely bullish on a specific asset class.”
This latest uptick in BTC price coincided with increased stablecoin deposits on crypto exchanges. However, such transactions are now decreasing.
A Potential Dip
Bitcoin has been going strong ever since the March sell-off and since then we have yet to see any meaningful pullback.
“BTC would have a correction when the spot inflow of institutional investors slows down,” says Ki-Young Jo, CEO of data provider CryptoQuant. He noted that Grayscale hasn’t purchased any BTC since Dec. 25. Also, we haven’t had significant Coinbase outflows since last week.
The relative strength indicator is also flashing red, putting the digital asset into overbought territory, suggesting the coin is “close to a top.”
“Key to this rally is that it has been sustained over several weeks,” said Matt Long, head of distribution and prime products with crypto brokerage OSL in Hong Kong. “If we do see a break to the downside, it will be instructive on the direction of first-quarter flows whether we see institutions continue to buy on a potential dip.”
The market has long been anticipating a correction that is yet to be seen. In the light of strong demand for Bitcoin, experts believe it won’t be as deep, 30% to 40%, as we saw during the 2017 bull run but less than half of that and even that would be quickly scooped off.
“My sense is we’re very close to a top — we could hit $30,000 though,” said Vijay Ayyar, head of business development with crypto exchange Luno in Singapore. “We should definitely see a pullback, but the magnitude is probably lesser. We might only see 10% to 15% drops.”
So here we are, #BTC is low-key maybe in a parabolic advance.
Let me be clear on my expectation:
bitcoin breaks $30k with conviction next week — advancing to $35k-40k before any pullbacks in the neighborhood of 30% are even considered.
30% pullbacks may no longer be a thing. pic.twitter.com/dfsTe25VM8
— Cole Garner (@ColeGarnerBTC) December 31, 2020
According to Ayyar, a lot of things have been validated this year, and “Bitcoin is now a real alternative.”
Regulators are also keeping things slightly uncertain. After the SEC sued Ripple Labs and its top executives for allegedly selling unregistered security XRP, it has been speculated that they are “sniffing around a number of projects and companies.”
Exchanges delisting $XRP following the SEC lawsuit is worrisome for many other tokens. The big questions now are “who comes next?” and “how fast will the SEC move?”.
— Alex Krüger (@krugermacro) December 29, 2020
The market can see the biggest hit if a stablecoin like the dominant USDT gets targeted. And although some may feel so, “Tether is registered and regulated under FinCEN as all the centralized competitors. Strict KYC/AML is applied to all Tether direct users, as the other main issuers are doing. Less regulated is just FUD,” clarified Paolo Ardoino, CTO at Tether and Bitfinex.
When it comes to Tether, the “SEC isn’t the agency to be worried about,” said Jake Chaervinksy, General Counsel at Compound Finance. The NYAG is already pursuing Tether in a Martin Act investigation, He said earlier this week that the handover of loan documents will be completed in “the coming weeks.”