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Bitcoin roars back 33%

BTC slid 14.38% on Wednesday, May 19. The price action dropped 30% to $30k, but buyers managed to claw back 14% by the close.  Notably, a 22% long shadow formed as a result of yesterday’s volatile trading session.

The total volume of futures market liquidations exceeded $8.0 bln yesterday. The Bitcoin price rose above $40k. Crypto players would like to believe that this was not a dead cat bounce, but a recovery after Wednesday’s bloodbath.

Glassnode provided some interesting data. About 175k bitcoins were sold off over the past 24 hours, the highest number since the pandemic pushed markets into a tailspin. On the evening of May 19 alone, more than 37k coins were withdrawn from cryptocurrency exchanges. Furthermore, the media wired that investment funds started snapping up Bitcoin right after the price dropped below $35k. It should be noted that even after this vicious selloff, virtually all tokens remain profitable in YTD terms (see Figure below).

In order for buyers to recoup the setback, they need to close today’s trading session above $42.8k (May 19 opening price). The challenge looks doable. But in order for this to happen, the S&P 500 will need to show some gains. The 3-day correlation between Bitcoin and the benchmark stands at 0.89.

Looking at the BTC and S&P 500 correlation chart, we can see that the rout in the cryptocurrency market yesterday caused US equities indices to decline and gold to rise. I think this was likely due to arbitrage (crypto trading bots).

Today, the pathway for buyers is open to $45k (50% of the decline from $59k to $30k). Sellers aim to hold $40k, so they will need to break through the $41,000 mark as quickly as possible. If the price action sinks to $34k again, expect a bumpy ride with rangebound trading over the next few days.

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