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Bitcoin’s flash crash was a good lesson

7


As we have been reviewing, BTC woke up a few days ago, after it managed to escape above a range of almost 90 days. Immediately a strong bullish momentum began, capable of driving the price towards an annual high of $ 12,120 and, after reaching, a bitcoin flash crash occurred.

With this rapid drop, the price plummeted $ 1,600 in less than 30 minutes, which meant a decrease of 13%. Therefore, once again using the basic principles of investment, which must be taken into account when investing in this market, we can analyze the situation: the high volatility of cryptocurrencies, and the danger of buying when the momentum is already very advanced.

What caused the Bitcoin flash crash?

Knowing exactly how it happened is impossible. However, when looking at various long-term signals, they end up triggering movements like the one we saw yesterday.

We recently commented how, despite the fact that market capitalization was increasing, the volume did not do it with the same force. This generated a divergence that indicates weakness on the part of the buyers.

Despite this, I also explained that this is quite normal behavior, because when prices fall, fear usually causes more insane reactions, generating a high volume of trade. Prices go up in an elevator, but they go down on a slide, and that’s exactly why, money is very scary.

As long as a rapid increase in buying volume did not occur, a small imbalance would quickly give the bears strong power, and so it did.

Greed reigning

In this incredible new price surge, several analysts have again reaffirmed their long-term bullish outlook.

Such is the case of Michael Novogratz, who expects the price of Bitcoin to reach $ 20,000 before the end of the year, due to the injection of liquidity worldwide and the influx of small investors.

Others indicate that the next bullish wave in search of record highs will be driven by institutional demand.

However, Novogratz’s vision is quite correct in the current context. He notes that they have received a series of calls from new retail investors asking what the best asset is, primarily with the intention of risky short-term speculation.

With the stimulus packages, many newly-started speculators try to capitalize on the markets, generating a wave of investment on a weak basis.

The combination of this strong injection of money into the economy, and the increase in the prices of cryptocurrencies, causes the perfect scenario for it to be the FOMO who owns the markets.

As a consequence, we see serious risks of rampant speculation, just as happened with Bitcoin in the recent flash crash, when more than $ 1.3 billion was liquidated on major exchanges. And, as I have always commented, when the rise is already news, rest assured that it is late.

Market capitalization and daily volume of BTC. Source: CoinMarketCap

Bitcoin’s technical analysis indicated we were in a strong supply zone

There is no doubt that the recent rise in the price of Bitcoin is an excellent sign. From the weekly chart, the escape above USDT 10,380 left the ground clear to a low of 11,550.

The price even managed to go a little further, but the supply zone still stretched to $ 12,330.

There, the combination of smart gains, with weak positions by the FOMO, generated the perfect storm for a Bitcoin flash crash.

Short-term trend

Despite the downside, Bitcoin is still holding strong, and even the short-term trend was unaffected.

The drop seen yesterday led the price to the previous support area, and left rejection on it, keeping the upward trend witnessed on the daily chart intact.

The 8 EMA and 18 SMA moving averages are crossed higher, and functioned as dynamic supports.

The 200-day SMA is also bullish today.

, Bitcoin’s flash crash was a good lesson, Forex-News, Forex-News
Technical analysis of BTC USDT daily chart. Source: TradingView

In intraday time frames is where the Bitcoin flash crash begins to be best observed

From the 4-hour candlelight chart of the BTC price, we observe the visit and rejection of the surrounding demand zone at USDT 10,750, which keeps the buying pressure in force.

However, as a result of the break in support at USDT 11,500, it started a downward transition. However, as long as the support at USDT 10,518 is not crossed, this move should not be too worrying.

, Bitcoin’s flash crash was a good lesson, Forex-News, Forex-News
Bitcoin vs. USDT chart with 4-hour candles. Source: TradingView

All our publications are informative in nature, so they should not be accepted as investment advice under any circumstances.



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