Bitcoin quickly recovered from a 23 percent drop. Why did this happen?

This week, the price of Bitcoin plummeted to the level of $ 44,800 during the next correction, that is, a drawdown after a long rise. However, after 22 hours, the value of the main cryptocurrency quickly returned to the $ 50,000 line and managed to stay there.

In general, in the history of the previous stage of BTC growth, there were several similar rollbacks on the chart by about 20-30 percent – and then the asset also showed sharp rebounds.

Here are the top three reasons behind Bitcoin’s current growth after the crash.

Recall that the scale of the fall in Bitcoin and the cryptocurrency market as a whole was noticeable to everyone. The first coin plummeted by more than $ 10,000, the largest BTC crash in its history in dollar terms. The rest of the coins also went down. In particular, Ethereum, which was valued at $ 2,000 last week, fell to $ 1,440.

Ethereum timeline

Ethereum price chart for a week

And although the collapse of BTC was significant, the cryptocurrency rate quickly returned to the line of 50 thousand dollars and even reached the level of 51 220 dollars. Today the coin started the day with 50.5 thousand dollars, which is also far from the recent bottom in the 45 thousand zone.

That is, the fall was sharp and painful, although the recovery of positions was also quick. On the whole, experts are not surprised by the current situation. They consider the market to be ready for growth in the short term and highlight several reasons for a fairly confident recovery of BTC positions.

Bitcoin futures situation

On major futures exchanges, including Binance, Bybit, and Bitfinex, the funding rate for a Bitcoin / dollar trading pair fell to 0.01 percent . Throughout the entire rally from $ 40,000 to $ 58,000, this indicator was almost always above the 0.1 percent mark , that is, market conditions changed dramatically.

Recall that the financing rate is a special mechanism in the market that forces buyers to compensate sellers if there are more firsts in the market, and vice versa. In general, this mechanism allows the price of contracts to be close to the price of the index.

When the market is bullish, that is, it goes up, users who bet on growth pay a certain percentage of their positions to those who expect to fall. Again, it’s all about the numerical advantage.

Cryptocurrency trading chart

Funding rates for Bitcoin and Ethereum

When the funding rate for futures positions is high, the market is overcrowded with buyers, so growth is likely to be excessive. This creates a serious risk of a rapid fall in the BTC price in a short period, because the asset cannot grow indefinitely. In general, according to historical trends, with a decrease in this indicator, the likelihood of a sharp collapse of the asset also decreases. So these changes are normal.

Cryptocurrency investments of large companies

On February 24, payment giant Square announced the completion of another round of investments in BTC worth approximately $ 170 million . Previously, the company also bought BTC for $ 50 million. In addition, MicroStrategy has replenished its supply of coins, which this week spent more than a billion dollars on buying bitcoins.

All of this strengthens the faith of large investors in the main digital asset as the most profitable bet during the growth of markets. Well, small investors finally realize that any fall is a temporary event, and as a result, growth will follow after it. Therefore, they follow the example of large players and also begin to open long positions – that is, bet on the growth of the market.

Recall that a few weeks ago, Tesla announced an investment of $ 1.5 billion in Bitcoin. This news also contributed to the cryptocurrency surge to a new all-time high. Usually, after crashes, such messages lead to a sharp rebound in the price of an asset, at least in the short term.

Market readiness to grow further

A large asset collapse is always accompanied by a shock increase in volatility – that is, price changes – and a heavy load on cryptocurrency exchanges. As the fall progresses, many investors see the crash as a lucrative opportunity to buy Bitcoin and other cryptocurrencies at a lower price. That is why there is always a rebound after the first drain wave.

As mentioned earlier, today the price of Bitcoin is hovering around $ 50,000 . Experts do not exclude that the first cryptocurrency has not yet finished with a collapse, therefore, in theory, investors may still have the opportunity to buy more profitably.

We believe that there is nothing wrong with the current market downturn. Corrections and crashes always happen as an asset grows – which was the case in 2017. In such situations, it is important to remember that large companies continue to buy bitcoins, ethers and other coins, and the very phenomenon of correction is a normal development during the growth stages. Therefore, here we can say with confidence that while the market is moving in accordance with the planned plan, and the run of the cryptocurrency niche is still far from over.

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