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Brutal correction for Bitcoin: is it over yet?

Photo of: Nathan VDH
by Nathan VDH

High volatility in the Bitcoin market. Perched above 56,000 dollars, the BTC plunged sharply in a few minutes, especially against the backdrop of criticism from the US Secretary of the Treasury.

February is reminiscent of the first weeks of 2020. Bitcoin started the year with a bang, surpassing the $40,000 mark for the first time. Too much, too fast, worried crypto experts.

In the last few days, Bitcoin was on the rise once again, not least because of Tesla’s investment. In just a few days, it broke the $50,000 barrier. The cryptocurrencies even seemed to be able to take on the $60,000.

Overheating was looming. And some events intervened to correct this tendency. On February 22, Bitcoin, which was trading at over $56K, plunged in a few minutes to $47,400. Volatility exploded.

And in spite of a rebound above $50K, the BTC posted a drop of more than 10% on February 23rd, to around $49,900. Investors were clearly not reassured by the latest statements of the Secretary of the Treasury.

With regard to Bitcoin, Janet Yellen fears that “it is often used to finance illegal activities. “In addition, she considers crypto “extremely ineffective” as a means of conducting transactions.

Yellen is also critical of the amount of energy used to process these transactions, which she describes as “staggering”. However, these statements are not enough to explain the correction in the price of the first of the cryptocurrencies.

As in January, this correction would thus be a normal mechanism, following a too sudden rise. Last weekend, the recent Bitcoin supporter, Elon Musk, wondered about its value, a little high according to him.

“This week’s general sell-off is the result of some easing of last week’s exuberance, as well as a much-needed unwinding of highly leveraged long positions,” Ross Middleton of DeversiFi told Reuters.

In addition, there were a number of signals that the Bitcoin market was likely to be volatile in the future. “Market liquidity is currently much lower for Bitcoin than for gold or the S&P 500, implying that even small flows can have a significant impact on prices,” warned JPMorgan as early as February 19.

Bitcoin’s three-month realized volatility was 92% on Sunday, February 21. This is the highest level reached since last June. However, investors have integrated this data and we might see a more prudent approach in the coming weeks.