After Rally, Cold Shower Kills $3.4 Billion in Long Positions
Bitcoin (BTC, Tech/Adoption Grade “A-”) has dropped significantly after hitting a resistance area of $53,000.
It’s quickly tested its 21-day exponential moving average (EMA) — a critical indicator averaging closing prices over a three-week span — by reaching the $42,843 level and jumping back above the $46,000 support level.
In essence, this has killed $3.4 billion in long positions in the process and has created a bloodbath among altcoins.
BTC/USDT daily chart shows BTC bouncing from a strong support level of around $43,000 (indicated by the blue line), which is also EMA21 weekly, and is currently trading around its 20-day moving average level (indicated by the red line):
This was a correction to liquidate over-leveraged positions and hunt stop losses.
Alt season has caused overheated funding rates of altcoins such as Ethereum (ETH, Tech/Adoption Grade “B”) (0.06% yesterday), but most of all, Cardano (ADA, Tech/Adoption Grade “B-”). ADA’s funding rate on Binance was 0.098% yesterday! Yikes! There were too many long positions, hence longers were paying high fees to ADA shorters. This is unsustainable in the long run, hence corrections are necessary from time to time in order to “kill the longers” and cool of the funding rates.
After a breakout and great rally during the last seven days, ETH was unable to get a candle close above $4,000. Hence, it dramatically dropped to $3,000, and then quickly recovered to above the $3,400 level. It’s currently trading at EMA21 daily.
ETH/USDT TradingView daily chart shows that ETH bounced from a strong support level of $3,000.
If we see further corrections, it will likely be due to funding rates rising again.
Furthermore, it will be interesting to see how ADA will perform right before and after its launch of smart contracts on Sept. 12. If the price drops, let’s hope it doesn’t drag other alts with it.
Notable, News, Notes and Tweets
• El Salvador buys its first 200 Bitcoin, president says.
• MetaMask wallet sees user count surge 1,800% in a year to top 10 million as Ethereum booms.
• El Salvador Congress backs $150 million fund for Bitcoin ahead of adoption.
What’s Next:
As I wrote on July 28:
And on August 23:
So yes, we have reached that magic level of $52,000 and surpassed it a bit, and the correction happened.
But pay attention … this correction is more about altcoins than BTC. And altcoins are the ones that are suffering more.
However, it’s better to see quick drastic drops like this one, rather than slow nerve-wrecking ones. Especially when important levels get tested like what we saw today.
Now the road to recovery looks more V-shaped (quick) than U-shaped. However, we may see further corrections if funding rates rise again. All in all, this may be painful, but it’s a healthy and necessary pull back.
Best,
Marija Matic
