As BTC prices drove through the psychologically important level of $40k at the end of this past week, the meteoric rise in levels finally found some resistance. The massive run that the year started out with was driven by relentless one way order flows, with massive amounts of inflows and no one willing to stand in the way and either dump their holdings or take a short to offer the other side of the trade. As we traded through 40k and then dipped back below, the story has changed somewhat.

Simply hitting this level was a reasonable signal for prices to take a pause. Many traders who jumped in with long positions towards the end of the year were looking at 100-200% gains, and prudent investors use these types of quick returns as times to reduce exposure, simply to rebalance risk. Add to that reports that some miners who had been doing their best to hang on to BTC that they had been creating through running their business were choosing to sell some of their inventory, a practice that they should naturally do at some point in order to raise cash to pay their electricity bills and other expenses, and it seems as though for the moment we have found enough sell interest to balance out the buyers.

This pause turned into a dip on Sunday as retail traders mentally adjusted their barometer of risk, shifting from an attitude of fear of missing out to one of fear of losses. This attitude shift, exacerbated by the fact that all of this happened on Sunday while large institutional traders were out of the office and banks and brokerages were closed, meant that this sell interest came at a time when the institutional inflows were on hold. At least temporarily, the trading flow was all one way again, but this time in the opposite direction.

US markets are just opening, and with the dollar showing some strength and equities showing some weakness in pre-market trading, it will be an interesting day. Will Wall Street take a pause and the profit taking that started in BTC over the weekend spill across the entire market today? Or will inflows in the US shake off the rebound in the dollar and simply buy the dip? We’ll see in a few hours whether the buyers or sellers start to dominate. Personally, I’ll be watching and waiting, ready to buy a dip but being wary of jumping in too early, waiting until I see some confirmation that institutional buying is proceeding to business as usual before placing any bets.

 

 

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