The crypto market is taking a beating today, in a continuation of the losses seen on Monday.
Just last week, Bitcoin hit a new all-time high at $69,000. But while the market ticked up, on-chain metrics were actually flat last week.
According to CoinMetrics, Bitcoin transactions grew by only 2.9% week-over-week while Ethereum transactions actually dropped by 0.6%, and stablecoin activity also fell off after a recent surge. USDC active addresses declined substantially by 8.9% on the week, while Tether (USDT) active addresses fell by 2.1%.
Following the latest drop, the total crypto market cap has slid down to $2.72 billion, down from over $3 trillion last week.
However, the latest pullback only sent the price to the level seen in late October, so just three weeks back.
As Vijay Ayyar, head of Asia Pacific with crypto exchange Luno, said, it “would be unusual to keep moving up without corrections” and argued that it is “a healthy pullback” after a prolonged rally.
Bulls Need More Beating?
The pullback has wiped out $1.3 billion of the Bitcoin open interest from yesterday’s high of $25.96 bln and $4.2 billion from $28.85 billion ATH on Nov. 10. As for Ether OI, just over $1 billion has been nuked to $12.06 bln, down from $14.66 bln ATH on Nov. 10.
The funding rate, as a result, has normalized, and in some cases like OKEx and BitMEX have even gone negative, as per Bybt. The highest funding rate for Bitcoin futures contracts is currently on Bybit at 0.0678%, while for Ether perpetuals, it is at 0.01% on Bybit as again.
BTC annualized daily basis on Binance has now fallen to 5.68%, down from 12.92% last week and 15.32% from late October but still extremely high from -0.96% in late September.
This resetting comes after the liquidation of 219,010 traders for $885.62 million in the past 24 hours. Binance accounts for 37.46% of it, despite not putting out complete numbers.
But is it over yet? That’s hard to know though trader CryptoCobain who called for a “savage dip” after the ATH breakout “to crush late longers then real ATH breakout,” early last month now sees the worst-case scenario to be Bitcoin dropping as much as to $48,000 or $52,000.
Basically, to a level where “it looks bad enough for bears to gloat,” he commented.
Speculators Need To Be “Shaken Out”
While Bitcoin has taken a drop, you wouldn’t want to be paper hands like economist Mohamed El-Erian who shared his crypto experience in an interview with CNBC, revealing that he bought some Bitcoin in the “crypto winter” of 2018 when the digital asset plunged to $3,000 only to capitulate well ahead of the face-melting rally.
“I felt compelled to buy it — I really did,” said the Allianz chief economic advisor. “I felt like I had framed it. I had this level, I had an entry point.”
But he ended up selling in late 2020 once Bitcoin went to 2017 all-time high of $20,000 due to “behavioral mistakes” as BTC went on to hit $65k in April and $69k last week, propelled by inflation fears.
While El-Erian didn’t comment on valuations, he categorized Bitcoin investors in three buckets: day-trading “speculators,” professional investors looking to diversify their portfolios, and “fundamentalists” who are in it for the long haul, with the last two types “really strong foundations for that market long-term.”
As for when to buy again, El-Erian said he would feel comfortable buying again once some of the speculators in the market are “shaken out,” which seems to be the case currently.
“These other two levels are pretty solid in terms of supporting bitcoin and other cryptocurrencies.”
“The key thing here is the underlying technology and the model. And those two things are going to be very influential in the period ahead.”
A Disruptive Force
According to El Erian, the cryptocurrency is a “very disruptive force,” but he doesn’t see it ever becoming a “global currency” and replacing the U.S. dollar either.
While it can’t be “regulated out of existence,” the former PIMCO CEO thinks the crypto industry should start engaging with regulators sooner rather than later to avoid the regulatory headwinds faced by giants like Amazon, Google, and Facebook.
The crypto industry has a “responsibility not to repeat the mistake of Big Tech,” El-Erian said. “The big mistake of Big Tech was they didn’t realize they were becoming systemically important, so they didn’t engage in preemptive regulatory discussions.”