With Bitcoin skyrocketing well above $9,000 this week, many are feeling bullish.
But if predictions from Bloomberg are right, we could be in for another Bitcoin correction soon.
What is a Bitcoin correction?
A Bitcoin correction is when the price of BTC declines immediately after a recent high. In its 11-year history, there have been many Bitcoin corrections following a price peak.
A Bitcoin correction suggests that the price was over-inflated and the asset over-valued and, as such, the asset is rediscovering its market price.
For example, Bitcoin price saw declines hitting record values of 94% in 2011, 87% in 2013, and 84% after its 2017 peak – to mention just a few.
But the market has been continuously dealing with more “regular”, less aggressive BTC corrections ever since Bitcoin’s Genesis block was mined.
Price corrections in the investment world
Price corrections are common in the world of investments. They refer to any decline of 10% or more in the price of an asset from its most recent peak. The same applies to a Bitcoin correction.
For day traders and short-term investors, corrections can have significant effects on their portfolios. On the other hand, corrections are less meaningful for HODLers and long-term investors as the market tends to recover over time.
When it comes to Bitcoin, 2019 marked something of a new milestone, with a Bitcoin correction that lasted around 200 days. Typically, corrections in the stock market last for a maximum of four months.
Unlike the stock markets, predictions for when a Bitcoin correction might hit or how long it’s going to last are almost impossible to make. There simply isn’t enough past data to analyse when it comes to this new asset class.
Still, most cryptocurrency exchanges and trading platforms use technical analysis in the form of charts to identify models and cycles to foresee changes based on historical data.
This is far from an exact science, however. The market simply isn’t mature enough to form meaningful patterns yet, so anyone claiming to make accurate predictions should be treated with caution.
Is a Bitcoin correction imminent?
Despite the recent BTC rally above $9,000, some analysts believe that this Bitcoin correction is still not over and continue to keep all eyes on the charts in 2020.
In fact, according to Bloomberg, a Bitcoin indicator that foretold BTC’s price crash last summer is flashing red once again. This means that a Bitcoin correction could indeed be imminent.
“Bitcoin’s trading around $9,000 once again but technical indicators show it may have gone up too far, too fast.”
Bitcoin’s trading around $9,000 once again but technical indicators show it may have gone up too far, too fast https://t.co/HHVy2fBvNo
— Bloomberg Crypto (@crypto) January 28, 2020
The GTI Vera Band Indicator monitors upward and downward trends to identify price patterns. And it is currently showing that Bitcoin’s bullish start to 2020 is ready for a correction.
As previously mentioned, that doesn’t mean a Bitcoin correction is certain to happen. Even the best analysts are often wrong.
However, somewhat troubling is the fact that this same indicator signalled a red warning on July 31, right before Bitcoin began its 31.8% drop from $9,766 to its December 18 low of $6,659.
Moreover, the GTI Vera Band Indicator has already flashed twice in January, both times ahead of pullbacks and a minor Bitcoin correction.
However, flashing indicators aside, Bitcoin price is up by well over 20% since the start of the year, outperforming the stock market. Some charts even show that BTC grew about 28% in the space of 18 days.
Is it a buying opportunity?
The golden rule of investing is to buy low and sell high. So, if you’re a casual trader or want to get your foot into the Bitcoin market, a good time to buy is during a Bitcoin correction.
The jury is still out on whether the market has finally flipped to the bullish or whether it will pull back into bearish terrain once more.
However, for those who believe that the number one cryptocurrency is still in the throes of a prolonged Bitcoin correction, BTC registering stable trading volumes is a good sign. Its price has also broken a seven-month downward trend, indicating that prices may take off even higher.
In this bullish scenario, Bitcoin could easily jump to the next significant target of $10,000. However, given the history of digital coins, a dramatic Bitcoin correction could still occur at any time, so never invest more than you can afford to lose.