Bitcoin price fell below the key support level of $60,000, reaching a low of $57,914. Since Tuesday, Bitcoin has experienced an additional 7% decline, reinforcing the ongoing downward trend. Currently, the market situation is changing significantly on the bearish side.
Is May 2021 Bitcoin Crash Near?
Andrew Kang, the founder of Mechanism Capital, expressed serious concerns about the emerging pattern in the Bitcoin market, reminiscent of the conditions that led to the spectacular crash of May 2021. In a detailed analysis shared by X (formerly Twitter), Kang. highlighted an overlooked critique of current market dynamics.
Kang said, “Most market participants don’t see the significance of a potential 4-month range loss for Bitcoin. The closest match we can get is that of the May 2021 range where we once again broke out of the BTC and alts rally. “
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He noted the uniformity of market conditions, especially in terms of leveraged positions, which currently exceed $50 billion. “This figure does not include the Chicago Mercantile Exchange (CME), which is higher, but it is combined with the fact that in this situation it has been going for a long time (18 weeks vs. 13), and it has not been cleaned up much when there are few in the middle of the 2020-2021 bull market,” explained Kang. .
Kang also revised his downward prediction for Bitcoin, suggesting a bigger fall than previously expected: “My initial estimates of the low $50k may have been too much wrong and we are seeing an extreme reset in the $40ks.” He warned that such a reversal could be very damaging to the market, requiring several months of consolidation and a downtrend before any reversal of the upward trend could be considered.
In an interview with Alex Krüger, a well-known macro and crypto analyst, the discussion explored the complexity of open interest (OI) in the derivatives market, an important factor for understanding market sentiment and directional bias. Krüger pointed out, “A lot of that OI is indirect though,” suggesting more complex market behavior than straightforward long and short positions.
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In response, Kang explained the composition of OI, saying, “Each OI unit is long + one short. Even though there are basic trading shorts on the short leg, there is a longer direction on the other side. So yeah… random shorts. ” The discussion also focused on whether derivatives dealers are neutral, which affects market stability.
Krüger asked about the positions of the market makers, and Kang replied, “I can assure you that there are not many market makers in OI who are neutral participants and pay subsidies/borrows to both ends of the negative trade.”
What happened in May 2021?
This ongoing discussion among experts shows deep concern about the potential for a repeat of the crash of May 2021. At that time, the price of Bitcoin fell sharply following a peak of about $64,000 in mid-April 2021. By the end of June, it had lost about 56% of its value. The crash was caused by a mix of factors, including deregulation in China, environmental concerns expressed by influential figures such as Tesla CEO Elon Musk, and the resulting panic sell-off among both retail and institutional investors.
In retrospect, the decline in May 2021 was characterized by fluctuations in investor sentiment, driven by external shocks and exacerbated by high levels of market activity. Today, similar conditions may be formed according to Kang, with a higher rate and extended periods without significant price correction, suggesting that the market may be on the verge of another major decline.
At press time, BTC traded at $58,736.
The featured image was created with DALL·E, a chart from TradingView.com
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