How Large Could the Correction Be in This Bitcoin Bull Cycle?

BY ON November 13,2020

In 2015-2016, before we broke the ATHs, we had three major corrections from the moment BTC bottomed with the Bitfinex crash. In 2017 there were four more 30-40% corrections, yet so far we’ve incurred up to a 21% correction and have seen something similar to the $3k-14k run in 2019.

I can see BTC going down to $10.9k although $12-12.5k seems more reasonable should it starts breaking below 15k. This scenario isn’t impossible as the PayPal news could be a sell-the-news event and we have left several mini gaps on the way up and the price is somewhat overbought. But even at 12k, the correction from $16.5k would be 27%.

What Goes Up…

Back in 2017 we had some major bad news and events that contributed to major dips (China ban and Bitcoin forks), whereas now we have regulatory clarity and understanding of how Bitcoin works. Exchanges are much better prepared to handle traffic, while liquidity has improved dramatically. Now big players have been accumulating and exchange balances keep going down as people take custody of their coins.

Back then, people were constantly worried that Bitcoin might die the next day and were not focused on how to buy the dip. Now everyone knows Bitcoin isn’t going away and hardcore hodlers have been stacking and will keep stacking for quite some time without selling. The more time passes, the stronger the belief that Bitcoin is here to stay, but also the more time passes, the lower the inflation rate. With every halving there is less bitcoin to be dumped on the market by miners who have less and less control over the price.

Learn From the Past

A major event this year was the BitMEX crash which taught people a hard lesson (don’t over-leverage). Now BitMEX isn’t even that important anymore and there are several stable exchanges that offer perps and options. Diverse futures and options products help dampen volatility without a single point of failure, especially USDT perps which are much better when things go down as collateral isn’t deteriorating, making dumps harder.

Finally, as many will keep expecting dumps to be the same as in 2016-2017, many will keep getting front run ,even by 5%. So people should ask themselves: why would Bitcoin dump as much as it did in 2016-2017? What are the potential events that could drive these corrections? How many of these could possibly occur given that we are already 23% away from the ATH and there aren’t any indications of froth in the derivatives/spot market data?

If in 2012-2013 the corrections were much larger than in 2016-2017 then why wouldn’t we expect to see smaller corrections in the 2020-202x bull cycle? Isn’t that what we expect from a market that is maturing with more serious players getting in which there are much larger investing horizons? Wouldn’t we expect corrections to get smaller as volatility has been going down?

So these are my thoughts on what I expect future bitcoin corrections to look like – though of course this doesn’t mean 30-40% corrections will never occur. I just think they will rarer, they will need some kind of catalyst and a massive bitcoin run that will be mostly driven by derivatives and not by spot markets.

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