Bitcoin Has Crashed: What’s Next After The ‘Extreme Fear’ 50% Price Plummet?
May 23, 2021
Bitcoin investors have been rocked by a price crash that’s wiped more than 50% from bitcoin’s all-time high.
The bitcoin price, after nudging $65,000 per bitcoin in April, dropped to just under $30,000 this week before rebounding slightly, falling after Tesla billionaire Elon Musk expressed doubts about bitcoin and fear gripped the market China could crack down hard on bitcoin operations in the country.
Now, as bitcoin market sentiment plummets to lows not seen since the March 2020 coronavirus-induced crash that sent the bitcoin price to around $4,000, traders and investors remain upbeat that a recovery is on the horizon.
This week, the bitcoin and crypto fear and greed index, where a value of 0 means “extreme fear” while a value of 100 represents “extreme greed,” fell to 11—down from over 90 earlier this year.
The index, calculated by Germany-based software comparison company Alternative using market volatility, volume, social media sentiment, media trends and bitcoin’s dominance over the market, currently suggests “investors are too worried,” which “could be a buying opportunity.”
Despite the bitcoin price crash and the fear that’s currently gripping the market, many in the bitcoin and crypto community feel this correction is a “healthy” rebalancing, needed for the market to move higher over the long term.
“The large falls in valuations seen this week are, in one way, healthy as they enable the market to clear excess speculative positions and consolidate before its next phase of expansion,” Anatoly Crachilov, the chief executive of investment manager Nickel Digital, said via email, pointing to bitcoin’s “122% gain from the beginning of the year” through to April.
“We have seen this pattern time and again across multiple cycles and expect this to remain in place until the market matures and achieves a larger involvement of institutional capital.”
The bitcoin price rally over the last few months has been partly driven by the long-awaited emergence of institutional investors, with bitcoin traders upbeat this latest crash won’t have diminished Wall Street interest in bitcoin.
“We see the current price volatility and speculation as a short term correction in a booming market,” Varit Bulakul, president of investment banking and digital assets at financial consultancy and capital management company Brooker Group, said in emailed comments.
“This sharp dip, brought on by bitcoin’s nosedive, highlights the critical need for asset diversity and a well-researched investment portfolio. After a strong bull run, companies and funds that over leveraged on bitcoin alone will now have confused shareholders and board members to answer to.”
Bitcoin analysts point to previous crashes and recoveries to support their belief the bitcoin price will bounce back. Following bitcoin’s late-2017 peak of around $20,000, the bitcoin price lost almost 90% of its value in the following year before charging far higher at the end of 2020 and into 2021.
“Crypto has had a breathtaking run over the past couple of quarters, so a strong pull back and consolidation now isn’t surprising—it’s what we’ve seen in all other previous bull markets,” Pete Humiston, manager of Kraken Intelligence, part of the U.S. bitcoin and crypto exchange Kraken, said in comments sent via Twitter DM.