7 September 2021: The correction throughout the cryptocurrency markets today should come as no surprise. While today is the day in which El Salvador has officially adopted Bitcoin as legal tender - Bitcoin Day - the markets have effectively destroyed enthusiasm as panicked holders try to sell into a wave of red. This article will explore the current market dynamics and why we experienced this correction.
Extreme Greeds ALWAYS Leads to Market Corrections
As multiple assets rallied over the past few weeks, the Crypto Fear/Greed indexy continued to rise from greed to extreme greed. Quite literally an exact mirror of the May correction, many altcoins rallied directly into the correction which as seen many assets fall by over 20% in just a few hours. The market has bounced up substantially from the bottom earlier helping to alleviate some of the pain of this small correction. Take a look at the fear/greed index below:
With the recent market rallies, greed had been steadily increasing over the past several weeks. Many coins had increased their valuations by over 80% or more since the market bottom in May. Additionally, massively bullish sentiment on social media have pointed to this correction for awhile. This is why in our previous market update we suggested having an increased percentage of your portfolio in a stable asset in the event of such a day as today.
The above chart is a track of the value of fear/greed over time. Circled in red is the index just before the major market correction in May followed by the subsequent bottom and consolidation period. As you can see, right around July 20th, which has now been confirmed as the lows for many coins, is precisely the point in which the index began a rally. This directly coincides with the rally in markets since mid-July. Circled in blue is where we are today. By the end of the day a correction in market sentiment should demonstrate the correction the markets experienced today.
Analysis on Bitcoin
In our previous market assessment, we noted that Bitcoin had fallen out of its previous upward price channel and was approaching an area of double resistance as the previous channel had flipped from support. Bitcoin broke above the first layer of resistance and then got harshly rejected off the previous price channel, sending it down significantly. Take a look at the chart below:
Bitcoin at one point today had fallen over 18% below the 50 day moving average before bouncing back up to current valuations. This may be a good level to actually add to your holdings if you had moved any capital into stable assets or FIAT. It should also be noted that El Salvador has annouced they in fact bought this dip and increased their holdings to over 500 Bitcoins.
Expect potentially extreme volatility over the next few days as traders make moves in response to this correction. Remember, holding onto your assets, especially Bitcoin, will pay substantially more for most investors over the long term then trying to time the markets. Not everyone can be a professional trader. However, corrections such as this one will always happen when greed becomes too high. Consider this a sale that those with safe capital can now take advantage of. While investing in cryptocurrencies itself does require a higher level of risk tolerance, at least by traditional standards, it is always a good idea to at least put a limiter on risk during periods of substantial gains.
Summary
Our long term sentiment has not changed. We are still monsterously bullish on a number of assets as we move into the later months of the year. While short term volatility should be expected, the overall trend of Bitcoin and other coins is still up despite the correction seen today. This is not a bear market. Nothing seen today confirms even a hint of that. Be smart, manage your portfolios, due your own diligence, and trade opposite market sentiment.
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