The central theses
- Bitcoin is expected to complete its biggest monthly decline since 2011. It suffered its worst decline since March 2020 during a market-wide crash earlier this month.
- Despite the crash, 74% of the BTC offer and 94% of the ETH offer are profitable.
- The market looks uncertain whether the negative trend will continue.
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Bitcoin was down over 36% in May, with hours remaining to close on the monthly basis. Ethereum is down 9% this month.
Bitcoin’s big correction
Bitcoin appears to be on the verge of completing its biggest monthly slump since 2011.
Bitcoin is down 40% from its record highs in April, while Ethereum is around 42.4% below its all-time high. The correction has been particularly noticeable in the past two weeks after the market suffered its sharpest decline since March 2020 earlier this month.
Bitcoin broke the support at around $ 45,000 in the second week of May, leading to a massive sell-off due to cascading liquidations. It hit lows of around $ 30,000.
Bitcoin fell below $ 50,000 for the first time on May 12 after a three-month consolidation. The sell-off was initiated by spot sellers and later intensified due to liquidations on the futures market.
The sell-off peaked on May 19, causing cascading liquidations in the futures market and DeFi positions.
The total open interest (OI) volume of the derivatives market started the month at USD 31.1 billion. Almost $ 12.2 billion was wiped out of futures and perpetual swaps in May.
According to Glassnode, 76.5% of the Bitcoin supply is profitable. In other words, 76.5% of the coins in circulation are priced higher than when they were last moved. The metric acts as a proxy for a top and a bottom indicator; A profit offer of 99% indicates a spike, while an offer of 40% often indicates a low.
The value of 76.5% is in the middle range.
On the other hand, almost 94% of the ETH offering is profitable. The most important levels for ETH are 99% for an upside and 25% for a downside.
Due to the rising inflation rates for Bitcoin and the development of the DeFi sector, there is some optimism across the market. However, the fear of a long-term bear market is palpable among the participants.
A change in mood
The change in sentiment has been particularly noticeable in recent weeks.
One of the biggest problems is that Similarity of recent crash to previous bear markets.
Bitcoin saw monthly drawdowns of around 30% eight times, with the most recent drop being the largest since 2011. These events can be broken down into six phases that represent a long-term trend reversal in the market. Six of the drawdowns marked a bottom while only two marked an upper one. Still, this month’s one bears a stronger resemblance to the top signals.
A closer look suggests that it looks similar to June 2013 and January 2018, which has different implications.
Bitcoin price closed in both May and June 2013 with an overall decline of 35.6% in the red. However, the price rose 5,428% towards the end of the year, suggesting that the current price could be higher as well.
January 2018, a month after Bitcoin peaked at nearly $ 20,000, was down 26.9%. In March and November of the same year it fell more than 30% and ended the year 73.4% lower. The peak values at the end of 2013 and 2017 were preceded by several months in the red.
The bulls need to hold current levels and avoid another big drop in the months ahead to avoid the long-term negative trend seen over the last two years in 2014 and 2018.
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