Bitcoin Price (BTC) Recovery to $5.5k Can Be Dead Cat Bounce for This Reason: Trader

Opinions
Sat, 03/14/2020 - 08:16
Joseph Young

The bitcoin price increased in tandem with stocks overnight to around $5,650, stabilizing at the $5,500s, but it remains vulnerable to further consolidation.

Cover image via www.shutterstock.com
Contents

Following U.S. President Donald Trump’s declaration of a national state of emergency, the stock market strongly recovered, posting its largest single-day rally since 2008. The bitcoin price increased in tandem with stocks to around $5,650, stabilizing at the $5,500s.

Stocks and bitcoin rallied because the national state of emergency opens up more funding and resources for the government to combat the coronavirus pandemic, as the outbreak in the U.S. worsens.

Traders believe there is more downtrend to come for bitcoin

Merely 48 hours ago, the bitcoin price was hovering at $8,000 across most major cryptocurrency exchanges including BitMEX.

Within a two-day span, the bitcoin price plunged from $8,000 to $3,600, and has recovered to $5,500 since.

After such a large drop that could have, in theory, flash crashed the bitcoin price to near-zero levels due to a cascade of long liquidations at an unprecedented scale, traders warn that bitcoin could consolidate further.

Investor Koroush AK said:

“For real though, People out here calling for a full reversal. After the biggest daily dump in bitcoin’s history. Amidst a global crisis and world wide panic. No technical/fundamental reason exists to be bullish immediately after this. Nothing short of complete delusion.”

Similarly, cryptocurrency trader known as “Wolf” said that despite the optimistic sentiment in the market following President Trump’s press conference, when the U.S. officially enters quarantines in major cities, the market could begin to react negatively once again.

The recovery of the U.S. stock market on March 13 also came immediately after a 9.99 percent drop, the biggest fall since 1987.

“If or when we do go into official quarantines, I believe that the markets will begin to dump again. So for now, holding spot bitcoin seems fairly safe, but it could likely just be a dead-cat bounce,” the trader said.

The bitcoin price recovers overnight to $5,500 (source: tradingview.com)

Historic levels of institutional sell-off were recorded throughout the week. A firm reaction was anticipated by analysts, and the government’s acknowledgement of the necessity of a stronger response to the coronavirus pandemic led market sentiment to improve.

Potential variables exist

The U.S. is still at the early stages of the coronavirus outbreak in comparison to other countries like China and South Korea that have already passed the peak of the virus.

Studies from prestigious institutions like Northeastern University have found that several states in the likes of Massachusetts are at risk of seeing a local epidemic the size of Italy.

Sam Scarpino, Northeastern epidemics lab assistant professor of network science, told Bloomberg:

“Massachusetts is smaller than Italy. It has about 100 cases. There were 159 cases in Italy two weeks ago. That’s where we’re headed. We’ve got to move now and decisively prepare hospitals, work remotely and ramp up testing.”

The pace in which the coronavirus outbreak either spreads or gets contained is expected to have a large impact on the stock market, and ultimately bitcoin in the short-term.

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About the author

Joseph Young is an analyst based in South Korea that has been covering finance, fintech, and cryptocurrency since 2013. He has worked with various recognized publications in both the finance and cryptocurrency industries.

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