Bitcoin (BTC) is at the forefront of attention as the cryptocurrency sector continues to attract investors and enthusiasts alike. With its recent surge, many are wondering if BTC is about to have a severe correction. In this article, we will look at the likelihood of a significant price correction in Bitcoin and evaluate the elements and evidence that indicate such a correction is possible. 

The Current Bitcoin Rally and Altcoin Conversion

According to top crypto analyst Benjamin Cowen, Bitcoin’s recent rally is not solely due to new capital flowing into the market. Instead, Cowen argues that the surge in BTC’s price is a result of traders converting their altcoins into BTC. This conversion from altcoins to Bitcoin is driven by the higher risk associated with altcoins, pushing traders to seek the relative stability and liquidity of Bitcoin.

Cowen suggests that as the liquidity from altcoins dries up, Bitcoin will lose its buy pressure, leading to a potential sell-off. He predicts that BTC will eventually get rejected at one of its nearby resistance levels, triggering a significant correction. This correction, in turn, would impact the altcoin market, bringing down their prices as well.

Bitcoin: Liquidity and Price Movement

The relationship between liquidity and Bitcoin’s price movement is a crucial factor to consider when analyzing the potential for a correction. Cowen explains that the liquidity in the altcoin market is currently being used to buy BTC, driving up its dominance in the market. However, once the altcoin market’s liquidity is exhausted, there will be no more buying pressure to sustain BTC’s rally.

Historically, Bitcoin has experienced notable sell-offs before major events such as halvings. Cowen suggests that these sell-offs occur when liquidity has been depleted. He questions whether the current rally is truly fueled by new money entering the space, as the total market cap has remained relatively stable. If new money were flowing in, one would expect the total market cap to increase accordingly.

The Potential Impact on Altcoins

When BTC enters a risk-off environment and loses its bid due to the lack of liquidity in the altcoin market, a domino effect occurs. The prior money that was allocated to scoop up “cheap Bitcoin” in the altcoin market disappears, leading to a drop in BTC’s price. This drop, in turn, crushes the altcoin market, causing significant losses for altcoin investors.

However, Cowen highlights that after the final drop in BTC’s price, there is a possibility for altcoins to outperform over the next three to six months. This shift in performance suggests a potential opportunity for investors to capitalize on the recovery and growth of altcoins once BTC stabilizes.

Conclusion

Finally, the likelihood of a significant drop in Bitcoin’s price has piqued the curiosity of investors and experts. The present rise, which is being driven by altcoin conversion, signals that liquidity in the altcoin market may ultimately dry up, resulting in a sell-off in BTC and a consequent impact on altcoins.