The concepts of decline and correction, which we also encounter in traditional stock exchanges, are also encountered in Bitcoin and crypto exchanges with some content differences. Let’s consider these concepts, which are closely related to both enthusiastic users who have just entered the market and investors whose presence in the market has a long history, and which can sometimes be used incorrectly interchangeably.
Just as the concept of a fall is used in traditional financial markets to refer to the depreciation of an asset or the general market by 10% or more during the day, the same shape is used in cases where a similar loss occurs in any crypto asset or in the general crypto market. In addition to the negative effects of technical factors on Bitcoin from time to time, mass withdrawals in market actors are the most critical triggering factors in the occurrence of declines due to the panic environment caused by sudden changes and developments in the social environment. In the case of large falls well exceeding the 10% limits, we see that macroeconomic developments, international regulations, large company announcements and sudden changes in policies are effective.
In retrospect, we see that Bitcoin’s biggest fall ever occurred in April 2013 when the US financial intelligence network FinCen attempted to shut down the Bitfloor cryptocurrency exchange. Bitcoin fell a huge drop of over 73% due to the impact of the incident, which exploded when the exchange lost 24,000 BTC to a hacker, worth a total of $ 250,000 at the time. The price of one BTC fell from $259.34 to $70.
We’ve seen another big Bitcoin decline more recently. In March 2020, with the World Health Organization declaring the coronavirus a global pandemic, we watched Bitcoin fall from the upper limit of $ 8,000 to $ 4,000 on the charts. We have experienced this 40% decline in this day, which is known as “Black Thursday”, as the second biggest decline in Bitcoin so far after the Bitfloor scandal.
The concept of correction refers to the gradual depreciation of prices by more than 10% in a few days. This indicates the existence of a relatively speculative atmosphere in the market, where more bull traders are exhausted and investors do not come across buyer offers that would trigger a rise in the price of their assets in their attempts to sell their assets. In the Bitcoin markets, where the tendency of investors to evaluate prices at the maximum level is increasing, there are gradual declines in Bitcoin prices as sell orders are piled up without finding buyers from the other side of the order books.
Bitcoin corrections, which can be affected by minor events, tend to be highly influenced by intra-market factors such as buyers entering strong resistance levels and declining trading volume, as well as technical developments such as negative discrepancies between the Bitcoin price and indicators measuring its momentum, such as the Relative Strength Index (RSI).
Is Bitcoin Price Volatility Bad? Should We Be Afraid of It?
The fluctuations that cause decline and correction in Bitcoin, which can be easily affected by various risks and factors, actually express the nature of Bitcoin, not some special situations related to Bitcoin. Namely, the downward and upward fluctuations in Bitcoin prices are considered normal as one of the features of Bitcoin. In fact, there are analysts who argue that the decline in Bitcoin prices will leave the continuation of a healthy correction environment and that this environment will provide a favorable environment for investors to invest in the Bitcoin market.
In addition, when we look at it in terms of long-term investments, it can be profitable in the end. In other words, even if the depreciations in Bitcoin that lasted for one or a few days will not leave their place to the correction environments in the future, we see that Bitcoin maintains its value gain compared to the previous period on an annual basis. In these environments, the amount of decline is not sufficient to cover the long-term appreciation of value. In other words, investors who hold bitcoin for a long time only lose profit if prices fall. We do not even need to mention how investors who have invested in Bitcoin for many years will be able to pay attention to the losses and profits in the downward environment.
With the awareness and experience of all this, a successful investor should be able to relatively predict the declines and corrections that may occur in the near future based on Bitcoin and the price fluctuations in the market. In the light of the developments we have mentioned, we will watch with curiosity what kind of fluctuations in Bitcoin are waiting for us, but we will experience together what will be effective in the decline and correction situations that may occur.
