KEY POINTS

  • RSI has been in overbought territory since October
  • The government is reportedly about to announce new rules on wallets
  • OKex has resumed withdrawals

Bitcoin has experienced its largest pullback in the rally on Thursday, missing the chance to reach a new all-time high on the backdrop of strong institutional and retail demand.

Bitcoin opened Thursday at $18,719, tried to breach past $19,000, only to be met with strong resistance on its way up. Upon the strong rejection, Bitcoin slid down, going as low as $16,205 before closing at $17,170. It’s the largest pullback so far in this 2020 rally that saw Bitcoin went from $10,000 on Sept. 5 to a 2020 high of $19,172 on Nov. 24.

According to Matthew Dibb, CEO of Stack Funds, leverages have been unwinded in a move many have already expected. The funding rate in the futures market has risen sharply to 0.098%, which was a sure sign of overleveraging. When the price of Bitcoin dropped, the funding rate also went back to 0.011%. This is a sign that excess leverage has been weeded out, Coindesk reported.

On the technical side, the rally has appeared overextended for some time now. The RSI has been indicating that Bitcoin was already on overbought levels since Oct. 20. The price drop Thursday allowed RSI to go back to bullish territory again, allowing the current rally to breathe for some time before resuming again.

On the fundamental side, multiple factors may have affected trader sentiment, further amplified by the fact that Bitcoin was nearing its previous all-time high.

Coinbase CEO Brian Armstrong made a series of tweets saying that the U.S. Treasury Department is planning to impose a new requirement on regulated cryptocurrency entities to track down the owners of any recipient address that are on unhosted wallets. This means if a Coinbase wallet (which is a hosted wallet in the sense that wallet is ‘hosted’ on Coinbase) sends Bitcoin to an unhosted wallet (a wallet where owners also keep their own private key), Coinbase must first have information on who owns the unhosted wallet before it allows the Coinbase user to send funds to it.

This form of tracking, if initiated, will be unpopular in the cryptocurrency community not just because it disregards the very principle in which it was created (for the owner to have the sovereignty of their own money), but because it presents limitations as well. For example, sending funds to a decentralized finance wallet will prove complicated because DeFi doesn’t necessarily require its users to declare their identity.

Another factor is OKEx finally resuming withdrawals. The cryptocurrency exchange suspended withdrawals because its founder, who was one of the people approving withdrawals manually, was “taken away“ by authorities in October. As soon as the withdrawal suspension was lifted, many users naturally considered selling.

“It’s likely many traders sold them for dollars and stablecoins to realize those gains, adding greater momentum to the selling,” said Sui Chung of CF Benchmarks to Coindesk.

Bitcoin In this photo illustration a visual representation of the digital currency Bitcoin sinks into water in London, England, Aug. 15, 2018. Photo: Dan Kitwood/Getty Images