The price of Bitcoin (BTC) recently fell below the important support level of $60,000, even dropping below $58,000.
In the past 24 hours, the price of BTC has dropped by around 5%, trading at $57,400 at the time of writing this article (July 4th).
Andrew Kang, Co-Founder of Mechanism Capital, expressed serious concerns about the current market trend, stating that it reminds him of the circumstances that led to the significant crash in January 2021.
He further emphasized the crucial nature of the current market dynamics that many people overlook:
“Most market participants fail to appreciate the magnitude of potential downside over a 4-month range. The closest analogue we can draw is the range in January 2021, when both BTC and altcoins broke the parabolic rebound.”
Kang pointed out the similarities in the current market conditions, especially in terms of leverage positions, with leverage positions currently exceeding $5 billion:
“This figure does not include the Chicago Mercantile Exchange (CME)…But what’s more concerning is that our range is longer in this case (18 weeks vs 13 weeks) and we haven’t had an extreme washout market pre-mid 2020 bull run – we had several in 2021.”
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The largest Bitcoin mining company did not sell any Bitcoin last month.
Kang also revised his prediction for the bottom of Bitcoin, indicating that the drop in Bitcoin may be more significant than previously expected:
“My initial estimate of a floor around $50,000 may have been too conservative, and we may see more extreme [losses] down to $40,000.”
He warned that this drop could have a strong impact on the market and that it would take several months of consolidation and downward trends before any upward reversal occurs.
Looking back at the drop in January 2021, it was mainly driven by a rapid shift in investor sentiment caused by external factors and further exacerbated by market leverage.
Kang stated that a similar situation seems to be forming so far, with high leverage ratios and a lack of significant price adjustments, indicating that the market may be on the verge of another major downturn.