Bitcoin plunges 7.4% overnight despite increasing investments in the currency. The value of BTC has gone down by $2,600 on Wednesday, Jan 20. One bitcoin is worth $34,600 at the time of this writing.
At the start of 2021, the bull market was on full swing. The value of BTC touched $42K before plunging down. Most popular altcoins like Ether (ETH) and Litecoin (LTC) also followed the suit of bitcoin. However, at the moment the bull rocket seems paused. The reasons for bitcoin plunge could be one of the following:
- The bitcoin derivative market was spiking. The investors made future fund rate hover around 0.1%, which is 10 times higher than the average 0.01%. The overheated market was bound to bring a pullback. This can also be a correction in the trend.
- The resistance is building around $38K. Despite the faith in bitcoin’s upward movement, the currency has been unable to touch $40K mark again since last week. It is giving rise to uncertainty. Investors are unsure whether bitcoin is turning into a bubble or really a true asset. The new investors who came to buy bitcoin only because of speculative mania are the first one to dishearten over the plunge. Their sentiment is having an impact on the market in short term. Nevertheless, the long term fundamentals of BTC look strong. A Twitter user wrote on Wednesday:
There is an increasing amount of trader doubt that Bitcoin will revisit $40,000. But according to address activity and trade volume, the long-term trend still looks plenty healthy. Keep a close eye on whether $BTC’s usage rate stays propped up.
- The last reason for bitcoin’s downward movement overnight is buyers becoming less enthusiastic about ‘buying the dip’. Before mid-January, whenever BTC went below $35K the small investors flocked to fill their wallet with BTC. This trend pushed bitcoin’s value back up. However, now the uncertainty has deterred investors to a small degree.
We have yet to observe the movement of bitcoin charts to decipher the pattern.