Credit: Original article published by The Capital.

Bloody Monday saw the bitcoin market cap retreat from $1.08tn to $978bn in the largest liquidation event in crypto history.

Let’s dig in.

Ethereum retreats after printing $2,000 ATH

Ethereum hit $2,050 over the weekend before retreating to $1500 in a massive mass liquidation event. In aggregate, total crypto long liquidations (mostly BTC and then ETH) hit $3.3 billion in the last 12 hours.

On Kraken exchange, ETH even traded below $700 at one point — over 50% less than other exchanges, which saw ETH bottom out above $1,500.

Consequently, this event raises questions about Kraken’s liquidity and whether the exchange should refund its users in response to this major trading anomaly.

Since February, Ethereum has taken a beating against Bitcoin, largely due to the platform’s network congestion.

Indeed, despite having a multitude of use-cases Ethereum fees remain problematic and it could be a few months before EIP-1559 is finally launched.

Year-to-date, ETH is up roughly 175%, while BTC is up 90%, with their market cap standing at 200 billion and 1 trillion, respectively — per data from coingecko.

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Technically speaking

Bloody Monday signals increased volatility

After tapping the $56,000 target, bitcoin was unable to continue its momentous run and prices quickly collapsed, falling 16% from peak to trough. Technically, bitcoin’s price-action is accelerating alongside its volatility, which is to say that higher prices are not impossible in a relatively short time-frame.

The further along the parabola bitcoin travels, the larger the price-swings become — which is also why appropriate risk management is paramount in these conditions.

Run it back turbo.exe?

Bitcoin’s current price-action is beginning to resemble the prior price-range ($30,000 — $42,000), which could play out again but at a faster pace.

Assuming $49,000 is the temporary floor, a retest of the highs is probable. Additionally, the last 2 daily candle closes are not top signals due to the relative size of the wicks to the bodied candles.

If enough momentum grips the market, BTC could attempt the secondary target within weeks if not days ($71,000). However, this prospect is largely dependant on traders’ proclivity to 100x long every 1% move with respect to bitcoin demand.

This is to say: is spot buying power strong enough to offset potential ‘degenerate’ longs, or will the market collapse into itself again?

ETH/BTC — bounce or full retracement?

From a structural point of view, Ethereum continues to pull back against bitcoin and trades at ₿0.032. This marks a 27% draw-down since early February highs.

ETH/BTC is in a daily-bear trend and attempts to retrace higher have failed so far. However, the trading pair has now reached the ‘golden pocket’ level which could spur a relief rally at the very least.

The ₿0.032 level has historically been a notable trading block, especially in Nov-Dec 2020 when price traversed in the tight range for weeks.

A bounce from these levels would correspond with both historical trading activity and the 0.618 fib retracement level.

MVRV-Z score approaches boiling point

Meanwhile, Bitcoin’s MVRV-Z score has risen above 7, revealing that the market has entered into euphoric conditions.

Historically, these conditions are sustained for a relatively short period of time and signal that a medium-term cool-off phase is in the works. At the same time, it’s unlikely for a consolidation phase to signal the ‘end’ of the bull market due to various on-chain metrics that suggest otherwise. For instance, bitcoin’s realised HODL ratio has not entered into red-hot territory, and is unlikely to do so for some time.

While nobody can tell the future, it would seem premature for a pull-back scenario to put a stopper on bitcoin’s macro cycle, given that both longer-term on-chain and fundamental data has not changed.

Catch you next time.

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Bitcoin and Ethereum Retreat as Volatility Grips Crypto Markets was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

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