The recent fast downward action in the Bitcoin market has sent shockwaves across the cryptocurrency community. With Bitcoin plummeting to a low of $65,110 after briefly touching the $71,000 barrier, the market has been left reeling. The sudden drop of more than 5% over the past 24 hours came as a surprise to many, but upon closer inspection of on-chain data, this downturn may not have been entirely unexpected.
According to Crypto research firm Kaiko, expectations for near-term volatility had been on the rise. Implied volatility for expiries in the following two weeks had spiked from 59% to 71% in just two days, indicating a potential market shakeup. Additionally, key indicators such as traders’ unrealized profit margins and the realized price had been flashing warning signs since late March. Despite these signals, market exuberance may have overshadowed the impending correction.
As Bitcoin witnessed its first drop below $66,000 since April 4, the liquidations in the past day amounted to a staggering $920 million. This influx of liquidations has put pressure on the market, leading to a cascade of sell-offs. Moreover, the correlation between the retracement of S&P 500 and gold prices with cryptocurrencies hints at broader concerns regarding CPI and inflation.
According to the most recent Glassnode report, the market has entered a euphoric phase, with profit-taking on the rise. Despite Bitcoin being down 8.32% from its all-time high of $73,750 set in mid-March, the current euphoria phase may just be the beginning of a more significant price discovery period. Previous cycles have shown that euphoric stages are often marked by deep price drops, with the majority exceeding -10% and some going as deep as 25%.
The recent Bitcoin price crash has shed light on the underlying volatility and fragility of the cryptocurrency market. As traders navigate through uncertain waters, keeping a close eye on on-chain data and key indicators will be crucial in anticipating and managing future market corrections.