Bitcoin has reversed its biggest two-day loss since March 2020, as prices returned to as high as above $51,000 on Wednesday after the derivatives market calmed down from an over-leveraged condition.

Bitcoin’s heavy losses earlier this week represented a retreat from price levels that some analysts characterized as euphoric. 

But as prices stabilized around $49,000 on Wednesday, signs emerged that some of the excessive leverage had been wrung out of the market, implying the potential for a fresh more to the upside, analysts said. 

The cost to fund bitcoin perpetuals swaps trades – a common way of betting on price movements in cryptocurrency markets, similar to futures contracts changes – have returned to “neutral territory,” according to the analysis firm Arcane Research. Prices even briefly traded above $51,000 on Wednesday after dipping below $45,000 on Tuesday.

Trading volumes on major exchanges have subsided following a furious level of activity in the past two days, with some $20 billion changing hands Monday and Tuesday on eight major exchanges tracked by CoinDesk. By late Wednesday, volume had registered just  $4 billion.

On the technical charts, Wednesday has been an “inside day” for bitcoin, meaning the price range is completely within the bounds of prior day’s high-low range, according to Katie Stockton, a technical analyst for Fairlead Strategies.

“This preserves the pullback despite the $50,000 threshold having been cleared,” Stockton said. “It appears that there is a short-term risk to the latest breakout point at the January high just below $42,000, which would be a natural support level.”

Also supporting bitcoin’s quick recovery from the sell-off is rising demand from investors who bought the price dip, expecting long-term gains. 

“Bitcoin has rebounded from yesterday's sell-off, with both retail and institutional investors using the fall in prices to add to their positions,” Simon Peters, crypto asset analyst at multi-asset investment platform eToro, said, citing Square’s new $170 million investment in bitcoin.

MicroStrategy, the business intelligence company led by CEO Michael Saylor that recently has become better known for its bitcoin holdings, said Wednesday it has bought another $1.03 billion worth of the cryptocurrency.

“With yet more endorsements from leading figures in the world of finance and technology, the direction of travel longer-term is clear – bitcoin and its peers are here to stay and are getting more integrated in our lives,” Peters said. “This bodes well for future prices.”

Not just in the West. The demand in bitcoin has increased in China, evidenced by the rising price of dollar-pegged stablecoin tether (USDT) denominated in Chinese yuan since last week,on over-the-counter trading desks.

Ether (ETH), the second-largest cryptocurrency by market capitalization, was higher on Wednesday, trading around $1,605.26 and climbing 5.55% in 24 hours as of 21:00 UTC (4:00 p.m. ET).

Ether continues to trade in sync with bitcoin and the correlation between the two cryptocurrencies  has strengthened since Friday.

Meanwhile, ether is still overbought on the technical charts, indicating that further sideways or “choppy” price action is expected in the coming months, said Fairlead Strategies’ Stockton.

Digital assets on the CoinDesk 20 are mostly in green Wednesday. Notable winners as of 21:00 UTC (4:00 p.m. ET):

Notable losers:

Equities:

Commodities:

Treasurys: