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Bitcoin ended this Sunday, April 25, a second week of Recession in its price, after reaching its last historical maximum, above USD 64,000, on April 14. In addition to the drop in the network’s hash rate, which began to manifest itself on April 15 and caused a record drop on Sunday 18, announcements of an increase in income taxes by the Biden administration have created uncertainty in the market in recent days. This has had a downward effect on the price of bitcoin, as reported by CriptoNoticias last Friday the 23rd, when this cryptocurrency fell below USD 50,000, for the first time since the beginning of last March.

A further decline in the Bitcoin hash rate, reported in this medium, was also repeated in the last week, which temporarily congested the network and contributed to another price decline this Friday, in the vicinity of USD 48,000, to later recover around the USD 50,000.

The decreasing trend of its price, took bitcoin below the 2 trillion dollars in market capitalization and to decrease its dominance below 50%, last Thursday 22, for the first time since August 2018. At the time of writing this article, the market capitalization of bitcoin is USD 981,058 million, while that the cryptocurrency market exhibits a total value of USD 2.01 trillion.

BTC price corrections in 2021

The most recent correction in the price of bitcoin is the fourth that has occurred this year, all of them after a historical maximum, as can be seen in the following graph.

The current correction is the second in magnitude, -21%, with 11 days of duration so far. The largest correction, on January 9, was 25%, as shown in the graph. However, this correction preceded the greatest price appreciation of the year, of 88% , before the second correction took place, on 22 last February.

Although the historical data cannot predict a clear trend on the duration of the current correction, several analysts have assured that the maximum of the cycle has not yet occurred.

Analyst Willy Woo points out in a tweet on April 20 that those who think that bitcoin has entered a prolonged phase of correction, “need to know about the rate of new users entering Bitcoin every day”. Precisely in the last two weeks, Woo points out, the entry of new users has accelerated.

Bitcoin does not require leverage, traditional assets do

A study by Ecoinometrics, commented on by CriptoNoticias on April 19, studies the leverage requirements of a group of traditional assets, to achieve a 100% annual return on them. The study reveals that a leverage of 5X is necessary in the case of Nasdaq and up to 66X in the case of gold. Bitcoin, for its part, with an annual return of 230%, does not require leverage, the study highlights.

Another aspect studied is the risk of leverage. The higher the leverage of an asset, the lower the tolerance for price drops. A clear example of this risk was seen with the hash rate drop on April 18.

When the price of bitcoin began to decline, began the very high leverage futures contract settlements, which caused a cascade of new settlements. It was these strings of liquidations that ultimately drove the price of bitcoin to a record drop, Coin Metrics notes in a study published by CryptoNews.

Featured tweet of the week

About the current correction of the bitcoin price, this tweet from PlanB ( @ 100trillonUSD ) compares the evolution of the current cycle of bitcoin (red line) with the cycles of 2013 (light blue) and 2017 (dark blue).

PlanB highlights that the current drop occurs a little less than a year after the third halving. He points out on the chart that in the two previous bull cycles there were also corrections approximately one year after the first and the second halving, respectively. PlanB’s hypothesis, also presented by Ecoinometrics, is that the current bull cycle will follow an evolution between the two growth curves after halvings 1 and 2.

Bitcoin network congestion

The problems of the reduction of the hash rate coincided with the periodic adjustment of the difficulty that should occur on April 15, for which the next adjustment would have to be expected in early May to normalize the current network congestion, according to an analysis by CriptoNoticias. Meanwhile, the hash rate has rebounded to 170 EH / s, after the latest drop last Friday.

Current correction is more tolerable than March 2020 drop

Alameda Research Founder and CEO Sam Bankman-Fried (SBF), compared the bitcoin fall of mid-March 2020 with the current correction, and highlights the great impact on the cryptocurrency market of a decline close to 40%, just over a year ago. The price dropped from $ 8,000 to $ 3,500, then stabilized around $ 5,000. Even if the percentage of the current correction is lower, the sales were five times higher, due to the increase in prices.

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