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It was a sea of red in the cryptocurrencies industry on Sunday as Bitcoin plunged below the resistance at $65,000. Bitcoin has plunged hard, a few days after it moved to an all-time high of $73,000.
Most cryptocurrencies were in the red. Sei token price crashed by 24% in the past 24 hours while Fantom, Celestia, Avalanche, and, IOTA, Gala falling by over 20%. Some of the other top laggards in the crypto industry were Algorand, Helium, Arbitrum, and Pyth Network.
It was unclear why these coins plunged since there was no major crypto news. However, there are a few reasons why this drop happened.
First, most coins were extremely overbought as the Fear of Missing Out (FOMO) intensified in the market. A look at the Relative Strength Index (RSI) of most coins show that it was above 85 last week. In most cases, financial assets tend to drop after being overbought for a while.
Second, this crash is because of a situation known as a shakeout. A shakeout is a situation where surging financial assets tumble with the goal of getting rid of speculators.
Shakeouts are popular across all asset classes, including crypto and stocks. In most cases, they happen after an asset reaches an important milestone. In this case, it happened after Bitcoin surged to $73,000 and then quickly moved below $70,000.
Further, using the Wyckoff Method, the drop is mostly because these coins have moved into the accumulation stage.
So, is this the end of the crypto bull run? I don’t think so since the industry has numerous catalysts ahead. A Bitcoin halving will happen in April this year. This halving will happen at a time when Bitcoin demand from ETFs is rising. In most cases, cryptocurrencies tend to do well ahead of the halving event.
Second, there is a possibility that the Federal Reserve will point to a rate cut later this year. The bank will hold its second meeting of the year. Risky assets like cryptocurrencies tend to do well when the Fed is cutting rates.
Third, history shows that cryptocurrency prices tend to do well over time. This explains why bitcoin has moved from near zero in 2009 to over $60,000 today.
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