Is the Bitcoin Rally Over? Reasons to Stay Bullish on BTC Despite Correction

Although there have been significant decreases in the value of digital assets, there are still several compelling reasons to remain optimistic about their future growth, even if prices level off or fluctuate for an extended period.

Bitcoin halving effect

The reward for mining new Bitcoin tokens will be reduced by half during this week’s upcoming event, which happens approximately every four years. Although past price movements around the time of the halving have been minimal, historically, these events have preceded significant price surges.

According to Joel Kruger, a strategist at LMAX Group, we haven’t anticipated significant extra momentum from the upcoming halving event because it’s an expected occurrence that has already been widely publicized in the market.

With the surge in demand for bitcoin among investors following the entry of major finance firms like BlackRock and Fidelity into the market through listed spot Bitcoin ETFs, this upcoming halving event could potentially boost the cryptocurrency’s price.

In addition, Kruger noted that while there may be some opportunities for Bitcoin to rally, this is the first halving occurrence with a larger global audience due to the availability of Bitcoin spot ETFs.

Investors might become more enthusiastic about Bitcoin due to the halving event, as they are compelled to explore it further. This increased interest could potentially lead them to seek greater involvement in the cryptocurrency.

Last week, Eric Balchunas, a senior ETF analyst at Bloomberg Intelligence, pointed out that BlackRock promoted its bitcoin fund (IBIT) on the main page of Bloomberg News.

Defying macro turbulence

Over the past few weeks, crypto markets experienced a decrease in momentum. However, the trigger for the subsequent correction on Friday was due to external factors. In the conventional financial world, there were growing anxieties about potential military conflict between Israel and Iran. At the same time, bond yields surged and the US dollar strengthened as investors reconsidered their anticipation of interest rate reductions in light of robust US economic data and mounting fears of persistent inflation.

Noelle Acheson, a macro analyst and writer of the Crypto Is Macro Now newsletter, noted an intriguing development: The earnings return on investment (Yield on S&P 500) has dropped below both the current 3-month Treasury yield and the 10-year U.S. Treasury yield. This situation might be a warning sign for the US equity market, as it’s typically expected that stocks should offer higher returns to compensate investors for the added risk compared to bonds.

If the stock market experiences a significant decline, Bitcoin and other cryptocurrencies may be negatively affected temporarily, according to Acheson.

Despite a temporary decrease in cryptocurrency values, there are several factors at play that could lead to a rebound. These include the store of value narrative, the upcoming bitcoin halving event, its role as a currency hedge, new use cases, and growing adoption. Therefore, it may be wise for investors to consider accumulating more during these lower levels.

Acheson suggested that there could be some positive developments in the near future which could ease the pressure on yields and alleviate the recent stress on risk assets, but this is rather uncertain.

If the Federal Reserve were to once again emphasize the need for interest rate reductions, this could help curb the recent surge in bond yields. This unexpected shift in stance might then prove beneficial for riskier assets.

Leverage wipe out

Significant events of liquidation in derivatives markets, where large positions are forcedly closed, can signal the end of a downturn for asset prices. These events reduce excessive borrowing and bring market enthusiasm back to realistic levels. Over the course of Friday and Saturday, crypto markets experienced one of their harshest purges of bullish bets, resulting in over $1.5 billion being liquidated.

“According to Vetle Lunde, senior market analyst at K33 Research, the market has significantly improved. The decrease in open interest and funding rates lessens the chance of chain reactions leading to forced liquidations. Additionally, Bitcoin‘s steady position above $60,000 further strengthens this optimistic outlook.”

The recent occurrences bring to mind the dramatic drop in Bitcoin price last August, which saw it fall from $28,000 to around $24,000 and triggered over $1 billion in liquidations for all digital assets. After this significant daily loss – the largest since the FTX collapse – prices remained stagnant for nearly two monotonous months before surging above $30,000 in October.

Typical bull market pullback

After Bitcoin dipped 16% from its peak in March, this latest decline falls in step with usual pullbacks observed during past bull markets.

During the 2016-2017 and 2020-2021 cryptocurrency bull markets, there were several significant dips of around 20% to 30%. These corrections are common occurrences in a bull market, as crypto analyst On-Chain College explained in a Reddit post.

In contrast to the present jitters, QCP Capital reported on Tuesday that there remains a robust, ongoing interest in buying Bitcoin and Ethereum call options with extended maturities reaching March 2025. This indicates that investors remain optimistic about future price increases.