The price of Bitcoin (BTC) has recently dropped below the significant support level of $60,000, even falling below $58,000.
In the past 24 hours, the price of BTC has fallen by about 5%, trading at $57,400 at the time of writing (July 4).
Discussing the declines during the previous trading days, Andrew Kang, co-founder of Mechanism Capital, expressed serious concerns about the current market trends, which he believes resemble the conditions that led to the significant crash in May 2021.
He also emphasized the critical nature of the current market dynamics that many overlook:
“Most market participants do not appreciate the significance of the potential loss of Bitcoin’s 4-month range. The closest parallel we can draw is that of the May 2021 range, when we also exited a parabolic rally in BTC and altcoins.”
Kang highlighted the similarities in the current market conditions, especially with regard to leveraged positions, which now exceed $50 billion:
“This figure does not include the Chicago Mercantile Exchange (CME)… but is complicated by the fact that in this scenario, we have an even longer range (18 weeks compared to 13) and we still have not had extreme shakeouts, whereas in the middle of the bull market in 2020-2021, we had several.”
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Kang also revised his bottom forecast for Bitcoin, suggesting a more significant drop than previously expected:
“Perhaps my initial estimates for low values of $50,000 were too conservative and we may see more extreme [losses] down to $40,000.”
He warned that such a drop could have a strong impact on the market, and that several months of consolidation and a downward trend will be necessary before any upward reversal is reached.
In hindsight, the May 2021 crash was marked by a rapid shift in investor sentiment, caused by external shocks and further exacerbated by the high leverage in the market.
According to Kang, similar conditions seem to be forming today, with high leverage and prolonged periods without significant price corrections, suggesting that the market may be on the brink of a new serious decline.