Cryptos Go Parabolic, Are You Prepared For Corrections?

Last updated: | 3 min read

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The Crypto market opens in 2021 with big rallies. ETH surges to $1,000 from $750 within 2 days, recording an over 30% gain. Bitcoin topped $34,000 for the first time on Sunday, rising more than 10% in the first few days of January. Although Bitcoin has slid lower to $32,000, it has delivered a more than 300% gain in 2020.

Bitcoin outlook buoyed by inflation expectation brought by fiscal and monetary stimulus measures amid the COVID-19 pandemic. Wall Street companies stepping in to accumulate more cryptos to hedge inflation has sent signals to the market, thus pushing cryptos’ prices higher. Even The New York Times took notice of Bitcoin’s recent rally, stating that the new rally is “with less talk of a bubble”.

While the markets generally share bullish sentiment regarding the long-term outlook for BTC and ETH, several technical indicators suggest that they are overbought at the moment, and traders should watch out for pullback.

One technical indicator calling attention is the bearish Shooting Star candlestick at the 200% Fibonacci expansion($35,114). Forms during an uptrend, a shooting star candlestick has a long upper shadow and little or no lower shadow. Shooting stars often suggest a potential price top and reversal. The momentum of Bitcoin could exhaust at Fibonacci resistance and take Bitcoin back to $30,000. The next psychological support under 30K would be the December high of $28,244.

“The parabolic move in Bitcoin in such a short time period, I would say for any security, is highly abnormal,” investor David Rosenberg said last week that both the stock market and Bitcoin were showing massive bubbles.

Massive influxes of money are pouring into the crypto market in the past few days. This could mean retail investors are confident enough to place their bets, or people are driven by FOMO again. Either way, traders should beware of the downside risks and take precautions to hedge risks.

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