Breaking: Crypto Rally Deflates as FOMO Buyers Prove No Match for Bitcoin Bulls

Cryptocurrency markets were back on the defensive Saturday following bitcoin’s second failed attempt to break $8,000 in as many days. The sharp correction reflects a loss of appetite by the market bulls to carry forward a monthslong rally that appears to have run its natural course. The true nature of the February-May breakout could help us to understand where prices go from here.

Crypto Markets Slide

Peak-to-trough, the cryptocurrency market lost roughly $9 billion on Saturday and was last valued just below $252 billion.

Crypto Market Cap
Compared to last month’s high, the total cryptocurrency market capitalization is down more than $35 billion. | Source: CoinMarketCap.

The top 30 largest coins all reported declines, with bitcoin falling 2% to $7,846 on Bitstamp. The leading cryptocurrency had traded as high as $8,061 earlier.

Bitcoin price
Bitcoin (BTC/USD) is still holding the vital 30-day EMA support line. A break below could spell trouble for the bulls. | Source: TradingView.

Bitcoin’s share of the overall market increased slightly as altcoins and tokens suffered bigger retracements. As of 2:30 p.m. ET, Ethereum (ETH) was down 3.5% at $244.34, XRP had lost 4.2% to trade at $0.4095 and Litecoin (LTC) shed 4.3% to reach $115.72 (all figures according to CoinMarketCap).

Looking further down the market cap rankings, bitcoin cash (BCH) was back below $400. It was last down 3.7% at $392.63. EOS, now the sixth ranked crypto by market cap, shed 5.9% to $6.32.

Bitcoin SV (BSV), which often trades in the opposite direction of the market trend, fell 5.4% to $195.34.

Bitcoin Whales: A Second Look

After four consecutive monthly gains, bitcoin’s price has entered a broad retracement marked by lower highs and a descending wedge. If taken at face value, these patterns suggest that a bullish-to-bearish trend reversal is underway.

The bearish outlook is supported by analysts who believe that bitcoin’s triple-digit recovery was caused by crypto whales short-squeezing their competition. Cryptocurrency analyst Willy Woo recently shared this view in a series of Twitter posts, where he argued that large accounts accumulated vast quantities of bitcoin to bet against short-sellers who were expecting prices to decline. By the time bitcoin crossed $8,000, the short-sellers were already defeated, making any subsequent attempt to reach higher highs more difficult.

Another Twitter user by the name of wolf recently showed the relationship between large spot purchases of bitcoin (presumably by whales) and the price over a 24-hour period. As the accompanying chart clearly demonstrates, large green candlesticks were accompanied by major price increases.

The green candles are still dominant as of June 8, but the buying is mostly coming from retail traders afraid of missing out on the rally (hence the “FOMO” label). The chart suggests that the FOMO crowd simply lacks the resources to fuel a price rally similar to the ones instigated by the whales.

Taken another way, it means that retail interest is not yet sufficiently large enough to carry the momentum forward. Woo holds a similar view and says that a proper retracement is needed before we see a real organic bull market. Historically, bitcoin rallies that mirror the one we saw from February to May are followed by large retracements of 30% or more.

To situate these trends within the broader market cycle, read: Bitcoin’s Next Four-Year Cycle Has Already Begun; Here’s What Investors Can Expect.

Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. Charts via TradingView and CoinMarketCap.

Author:
Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi