- Bitcoin could take weeks to recover from Tuesday’s 14% plunge and reach a new all-time high, analysts say.
- Despite the swift correction, the market remains highly levered.
- In the meantime, analysts urge traders to brace themselves against more volatility.
Bitcoin could take weeks to decisively break through its all-time high after crashing 14% on Tuesday, according to analysts.
“The last pullback in January took over a month before it broke above new all-time highs. I expect in the next one to two months, Bitcoin will be at new highs,” Jamie Coutts, chief crypto analyst at research firm Real Vision, told DL News.
This week’s flash crash mirrored Bitcoin’s price action before it took out its old all-time high in November 2021, Jag Kooner, head of derivatives at Bitfinex, told DL News in an email.
Back then, Bitcoin briefly “moved past its previous cycle high around $19,890… and moved down 15% immediately causing a large number of long liquidations,” Kooner said.
It took approximately a month for Bitcoin to finally break through $20,000, Coutts noted.
While waiting for a second shot at a new high this year, analysts warn of even more volatility.
‘Froth is still with us’
Tuesday’s drop triggered over $1 billion in liquidations across crypto — the second biggest day of wipeouts since the FTX collapse in November 2022.
Liquidations occur when traders are forced to close their positions due to prices moving rapidly against them.
“Usually this kind of flush-out brings down leverage somewhat and knocks some of the froth out of the market,” Noelle Acheson, former head of market insights at Genesis and author of the Crypto is Macro Now newsletter, said Wednesday.
“That doesn’t seem to have happened this time,” she said.
Traders have taken increasingly riskier bets on Bitcoin as it moved toward record highs over the past week, adding additional risk and volatility to the market.
“Froth is still with us, which suggests that the volatility will continue,” Acheson said.
Deribit’s implied volatility index, DVOL, which indicates the expected movement in Bitcoin’s price, supports Acheson’s outlook.
The index broke the 71% threshold on Tuesday for the first time since the collapse of FTX. It remains elevated around 70%, suggesting prices will continue to whipsaw.
‘Fitting initiation’
Bitcoin’s brutal reaction to scrapping its previous all-time high of $69,044 was not necessarily surprising.
Massive price swings are not abnormal in crypto markets.
“It’s just that it’s been a while,” Acheson said.
The introduction of spot Bitcoin exchange-traded funds pushed volatility to record lows in January. Those investors got a crash course on crypto markets this week, and class isn’t out just yet.
“One way to appreciate the wild price springs is as a fitting initiation for all the new ETF investors: now they know just how volatile Bitcoin can be,” Acheson said.
But traders weren’t deterred by the massive washout on Tuesday.
Open interest experienced dramatic swings over the past two days but remains at record highs in some markets.
This metric reflects the total number of outstanding futures contracts held by market participants.
Bitcoin futures open interest on the CME, the largest exchange for Bitcoin futures, rose 3% in the past 24 hours, according to CoinGlass data.
Binance, the second largest venue for Bitcoin futures, increased by 2%, suggesting speculators aren’t going away anytime soon.
Tom Carreras and Adam Morgan McCarthy are markets correspondents at DL News. Got a tip about Bitcoin and market moves? Reach out at tcarreras@dlnews.com or adam@dlnews.com
