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Bitcoin's big swing in prices over the weekend likely set the stage for a period of consolidation before the cryptocurrency can make another move higher.
The digital currency lost as much as 15% over the weekend, and rival coins like ethereum also fell.
Bitcoin traded around $55,970 at 4 p.m. ET. Some crypto-linked equities were lower. Coinbase lost nearly 2.6%. Meanwhile, Voyager Digital lost 9.6%, and Marathon Digital Holdings lost 8.7%.
"There's been a lot of rumors and speculation about what pushed the market down over the weekend. To me, it's boiled down to excess leverage within the system," said Leeor Shimron, Fundstrat vice president of digital asset strategy. "We've seen it over the last couple of weeks, especially in bitcoin, but it spilled into other asset classes as well."
Shimron said there was a big deposit of bitcoin over cryptocurrency exchange Binance over the weekend, which helped fuel speculation.
"When the sell-off happened this weekend, approximately $5 billion worth of bitcoin contracts was liquidated, and $9.5 billion was liquidated including altcoin markets," Shimron said.
"Notably, this is twice the notional value compared to Black Thursday 2020, when bitcoin's price dropped by ~50% in 24 hours. The fact this sell-off resulted in a drop of just 15% and quickly rebounded speaks to how much the market has grown and matured over the course of the last year."
Bitcoin tumbled below its 50-day moving average in weekend trading and was again below it Monday. The cryptocurrency recently traded close to $65,000, but was at around $55,900 Monday afternoon, according to Coin Metrics.
Julian Emanuel, head of equities and derivatives strategy at BTIG, said he expects bitcoin to trade in a range between $50,000 and $65,000 after the weekend shakeout. He said it could have entered a period of lower volatility while it consolidates before moving higher again.
Emanuel said he is watching the 50-day moving average at around $56,500.
A break below the 50-day moving average for a significant period of time warns of negative price momentum.
"The spike yesterday was to a low of $51,707. I would define it as literally the point of maximum frustration," Emanuel said. "If you're a bull or a bear, everyone has been keying off the 50-day moving average, and we think the best outcome is you stay pinned to the point of maximum frustration so volatility can come in and the price can correct."
"It's our expectation right now and our wish for the long-term health of the crypto market that we have a correction in time whereby both the bulls and the bears are frustrated by the price action," he said.
Bitcoin went on a tear to near $65,000 ahead of the recent Coinbase debut on the Nasdaq, which was seen as a new lure to bring investors into crypto assets. "The least healthy thing would be a near-term break to the downside or the upside for the range we established over the last week," Emanuel said.
Fundstrat's Shimron said he went into the weekend seeing the $60,000 level as the key level bitcoin should hold. But it failed and bitcoin moved closer to $50,000 temporarily
"I would not be surprised to see a greater period of consolidation for the next couple of weeks or so until $60,000 is regained," Shimron said. "We think bitcoin is going to move higher for the rest of the year, even if we consolidate over the next few weeks."
Fundstrat expects bitcoin to reach $100,000 by the end of the year.
Katie Stockton, chief technical strategist at Fairlead Securities, said if bitcoin closes below the 50-day moving average two days in a row, its next move could be to the support level around $42,000.
"I think right now, until we see the decisive breach of the 50-day moving average, we're keeping a neutral short-term bias," she said.
Stockton said on the upside for bitcoin, her next target is $69,000.
She said she is not surprised by the sell-off after the big surge. "It makes sense that any steep uptrend is prone to create digestion," Stockton said.
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