With Bitcoin trading above $56,000, retail traders may be thinking that they have missed the opportunity of buying below $50000 when the price was low relative to the massive price surges the king coin has attracted this market cycle. Hitting a $1 Trillion valuation has increased institutional inflow into Bitcoin and top altcoins. At this point, as open interest and trade volume continue to peak for Bitcoin futures across derivatives exchanges, there is a fear that a price correction below $50000 may cause a slew of liquidations and have a long-term negative impact on the price.
The current Bitcoin bull run is different from the previous ones in many ways, however, this does not ensure that there won’t be a correction. Neither does it ensure that the combined market capitalization of Bitcoin and altcoins combined won’t take a dip. As institutional buying has continued throughout different prices in the current price rally, this would mean negative returns on institutional investors’ portfolios.
When the price crossed $50000 for the first time, it was noted that stocks of institutions that have invested cash from their balance sheet in Bitcoin are strongly correlated. The returns also went up in proportion to Bitcoin’s price rally. A dip below $50000 may undo this progress unless it is momentary and the price continues climbing higher. It is however critical to think of a point where it would be no longer profitable to buy Bitcoin if you calculate profits in USD terms. Currently, Bitcoin’s ROI/Risk or the Sharpe Ratio is 3.12.
A value above three is considered excellent, and Bitcoin’s risk-adjusted returns are profitable for HODLers and investors. How long it remains profitable depends on the trend in the price rally, upcoming trend reversals, and the buying price. Institutions like Grayscale have bought Bitcoin in a scheduled manner averaging the price as they go and this is ideal so far, with the current state of Bitcoin’s price rally.
These metrics also point that a drop below $50000 is nowhere close unless a major trigger event reverses the trend. Several retail traders also lined up on exchanges to buy Bitcoin above $50000, this becomes evident from Bitcoin’s trade volume on spot exchanges. As trade volume on spot exchanges continues climbing even at the current price level, it is likely that $50000 may become critical support for Bitcoin in the future, just as $35000 did, in the previous phase of the current price rally.
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