Analysts across both cryptocurrency and regular sectors have seen alarming parallels between the current drop and the one triggered by pandemic hysteria in March 2020.
The key issue is whether this is the beginning of a wider slump or whether there will be a huge jump, similar to what happened in 2020 when crypto and stock sectors went on a lengthy price surge.
Anthony "Pomp" Pompliano, a podcaster and creator of The Pomp Letter, is a permabull, tweeting on Wednesday that "Bitcoin is up 340% since March 1, 2020, when one Btc cost roughly $8,545".
Raoul Pal, the CEO of investing company Real Vision, claims the Bitcoin (BTC) markets have been drawing a structure that resembles the March 2020 catastrophe.
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Pal highlighted in his Friday edition of Raoul Pal Adventures in Crypto that Bitcoin may have "shot straight down" to the bottom of the current wedge formation last week and is currently in a range that may probably result in another price gain. He said:
"In March 2020, we had exactly that type of trend."
Many assets, including Bitcoin, were panic-sold on March 12, 2020, as investors feared the effect of the COVID-19 outbreak and worldwide lockdowns on the market. According to CoinGecko, Bitcoin plunged 45% on that day, from $7,935 to $5,142.
In non-inflation adjusted terms, the current collapse in conventional markets has resulted in a loss of $7.6 trillion in market value from the tech-heavy Nasdaq, more than the dot-com bubble and the March 2020 sell-offs combined.
Based on the early formation of a typical bearish reversal pattern, technical analysis reveals that a recent advance in the value of Aave (AAVE) exhibits weariness.
When the value climbs inside a range established by two ascending, converging trendlines, the pattern is known as a "rising wedge." As a result, trading volume falls, indicating a lack of confidence among traders when extra buying is required to maintain upward momentum.
As a result, falling wedges usually result in a bearish breakout when the price breaks below the pattern's lower trendline and falls as far as the wedge's upper and lower trendlines allow.
AAVE has been painting a similar pattern during its rapid upward run from approximately $61.50 on May 12 to over $93.50 on May 17. As indicated in the chart below, if a prolonged collapse occurs, AAVE will fall by at least $27, the wedge's maximum height.
AAVE is on its way to about $70, down around 25% from its current price of $89.20.
The negative situation for AAVE arises due to the cryptocurrency market's continued high association with US equities markets.
As of May 17, the daily correlation coefficient between AAVE and the tech-heavy Nasdaq 100 was 0.91, indicating that the two markets had been moving nearly in lockstep.
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The Federal Reserve's ultra-hawkish monetary policies, especially the latest 0.5% rise in benchmark interest rates, are at the heart of their synchronous tendencies.
Fears of a further sell-off persist as Wall Street veterans warn of an impending recession.
