Bitcoin price 2021 might undergo major correction after the rally extension

Bitcoin price 2021
Bitcoin price 2021 might undergo major correction after the rally extension

Bitcoin price 2021 has seen an unprecedented rise waiting for a major price correction in 2021, with its value witnessing a 240 percent jump in 2020, giving investors better returns than other traditional mainstream investment platforms. 

Bitcoin Rally 

Continuing its upward rally, the world’s most popular digital currency Bitcoin touched another record high of $28,600, recording a 4.4 percent surge from its previous high. The cryptocurrency has surged nearly half in just 15 days since it achieved the psychological milestone of $20,000 on December 16. 

The main reason for the rising Bitcoin streak may be bulk buying by big US investors. They expect to make quick gains amid some positive developments around the cryptocurrency, including speculations that it could become a mainstream payment method. 

The cryptocurrency almost quadrupled, surpassing $20,000 for the first time as it notched record after record. The diehards cheered it as an inflation hedge in an era of unprecedented central bank largesse. Wall Street veterans from Paul Tudor Jones to Stanley Druckenmiller blessed it as an alternative asset, adding to the rally. 

Billion-dollar market cap

Since its meteoric rise in December, Bitcoin’s market value has now exceeded $500 billion, as per Coindesk, a cryptocurrency platform. Not only Visa, but Bitcoin is valued more than the biggest publicly traded companies like Samsung ($463.63 billion) and Walmart ($406.00 billion), the data shows. 

A major jump in Bitcoin price — from $5,000 to $25,000 — was seen after PayPal – the online payment major – announced in March that it’ll enable its account holders to use Bitcoin. This marks a colossal 400 percent increase in the past eight months. This is more than the $460.06 billion market cap of Visa, the world’s biggest financial service company, as per the Companies marketcap data.

Institutional investors are increasingly interested in bitcoin. The firm previously stated that investors had been moving their money from gold exchange-traded funds (ETFs) into Grayscale’s bitcoin trust. And companies like MicroStrategy Inc. and Square Inc. moved cash reserves into crypto in search of better returns than near-zero interest rates deliver.

Why bitcoin price 2021 rally is different from 2017?

Many left the coin for dead after its 2017 rally resulted in a crash the following year, a stretch of time sometimes referred to as the “crypto winter.” But it’s surged more than 300% in 2021 and many investors say it could continue to gain bitcoin price 2021. 

Some commentators also say that the pandemic might have proved to be a turning point for Bitcoin’s acceptance as a “quasi-digital gold” for investors. Institutional firms and hedge funds, interested in parking their funds for the long term, are also beginning to pour funds into the asset class. 

In the long term, such liquidity should help propel future price increases because it strengthens the market and tamps down the intense volatility that has characterized crypto markets.

If history is any indication, the COVID-19 pandemic may have also proven to be a turning point for cryptocurrency markets. Prominent economic historian Niall Ferguson told online publication Barron’s that pandemics are accelerators of financial history.

Major correction of Bitcoin price 2021

Every beautiful rally comes to an end and gets followed by a corrective period. The global crypto market has risen another $30 billion today, which has helped lift Bitcoin out of yesterday’s bearish descending triangle and onwards towards a new all-time high bitcoin price 2021 at $28,800.

Despite the increase in investment entering the market over the last 24 hours, the overall trading volume has actually declined by $10 billion. This, coupled with the fact that there is a substantial RSI divergence on the Bitcoin price chart right now, suggests that the current bullish trend is weakening and that the leading cryptocurrency might correct soon.

In the bearish camp, some analysts are still drawing comparisons with the current Bitcoin surge in 2017. They claim that a crypto rally that sees a move from safer to more volatile investments is always accompanied by a comprehensive rectification. In 2017, the bitcoin reached a peak in December, ranging from $790 to $19,041. 

Also Read: 2020 saw cryptocurrencies in India gaining momentum. What does 2021 hold for us?

Interestingly, Bitcoin ranked among the most crowded companies in the December 2017 BofA report. It fell to 74% in 2018. There is, however, a strong bearish RSI divergence on the 4-hour and hourly chart (white lines) that highlights the current uptrend may be running out of steam. RSI divergences are typically reliable indications that a trend is about to reverse. 

The bitcoin/gold ratio is also a brake light signal of red. As the following diagram shows, in recent months, it has increased from 1.1 to 15.

The bitcoin/gold ratio shows that the former is overvalued and poised for a correction.

Slowdown in inflows

Going forward, many strategists and investors say, the industry could see more scrutiny and tighter regulation with Biden in the White House. A slowdown in inflows into a major fund will make a correction more likely, says JPMorgan. 

JPMorgan’s analysts have warned about the odds of a bitcoin correction which would increase if the flows into Grayscale’s bitcoin trust slow significantly. The analysts indicated that bitcoin is “overbought.”

Such a drop inflows into the largest Bitcoin fund would increase the likelihood of a price correction similar to the one seen in the second half of 2019, according to a note from the bank’s quantitative strategists led by Nikolaos Panigirtzoglou.

More downside for BTC will not benefit altcoins. Correlations are still very high in the cryptocurrency markets, which means that altcoins will most likely suffer from any Bitcoin correction. However, once Bitcoin finds its next bottom, altcoins will likely be well-positioned to outperform Bitcoin on shorter time frames once again.

Start this year prosperously with some profits! 

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