The price of Bitcoin had its worst drop in seven years, after a billion dollars in long term liquidation. Major market traders are discussing the causes.
The price of Bitcoin (BTC) fell to $3,600 overnight, marking the largest daily drop in Bitcoin in the past seven years. On March 12, more than $1 billion in longs were liquidated, causing one of the most intense restrictions in the recent history of the crypto market.
The main catalyst for the sudden 50% drop in Bitcoin’s price over eight hours was the 9.99% drop in the Dow Jones Industrial average. The U.S. stock market experienced its worst sale since 1987, when the panic over the coronavirus pandemic intensified to unprecedented levels.
Over the past seven days, Bitcoin and cryptomontages in general have shown a high level of correlation with the U.S. stock market, possibly due to the general decline in investor appetite for high-risk assets. The sharp correction in the U.S. stock market along with the lack of buying demand, while the price of Bitcoin fell to the low levels of $5,000, eventually leading the price down to $3,600.
Operators explain the technical reason behind the fall
Until the global financial market begins to show signs of recovery, possibly through the introduction of more stimulus packages from central banks in Europe and the United States, Bitcoin is likely to remain vulnerable to short-term abrupt withdrawals.
Speaking to Cointelegraph, cryptomoney trader and technical analyst Eric Thies said that although investors’ focus has been solely on the coronavirus pandemic, there have been major geopolitical conflicts and risks affecting the market recently, such as the dispute over oil prices between Saudi Arabia and Russia. The unexpected drop in oil prices put additional pressure on world markets, adding to the uncertainty, fear and instability felt by investors. As Thies said:
“Today’s massive dumping in both the crypt and traditional markets was very interesting, to say the least. Although many would say that it is only due to the coronavirus, if we analyze it further we will see that it does not show the usual signs of a recession. This may be due to the oil war that many people have not heard of due to news of the virus”
Thies said that with the fall to $3,600, a new market cycle could begin for Bitcoin. Leading traders have said in the last 24 hours that Bitcoin’s overnight drop could start a long build-up phase, similar to that of early 2019.
If that happens, institutions could continue to accumulate BTC at lower prices if appetite for risky assets improves over time, making the market less focused on whales or individuals who hold a significant amount of BTC. Thies explained further:
“One thing that I think is overlooked by many crypto investors is the flow of money in this new market cycle. This is the first market cycle in which the weight of money will potentially be retained by institutions. That means that Bitcoin is now tied to traditional markets, and far from being a safe haven when it comes to the emotional cycles of humans, and our instinct to save our money when we become fearful”
Throughout February, the Grayscale Bitcoin Trust showed a premium of about 30% over Bitcoin’s spot exchange price on platforms like Coinbase. This represented a steady inflow of capital from reputable and institutional investors in Bitcoin.
The price of Bitcoin fell to $3,000 due to the highly leveraged nature of the crypto market and the unwillingness of buyers to intervene amid extreme volatility and uncertainty. After the fall, Bitcoin’s liquidity dried up to the point where a limit order of about $11 million was driving down Bitcoin’s price on BitMEX by $300 relative to other exchanges. Cryptcoin trader Jacob Canfield explained in a tweet:
“This guy is trying to unload $11 million here with limit sales, but he’s been keeping the price low relative to other exchanges. Mex was running $300 lower than almost any other exchange due to delays in settlement.”
A large part of the daily market volume of the cryptomoney exchange comes from futures trading platforms such as BitMEX, OKEx, Binance Futures and FTX. This suggests that most traders in the kryptonex market are trading major kryptonex with borrowed capital.
In times of increased volatility and unexpected market selling orders in the hundreds of millions of dollars, the price of Bitcoin could react with a severe and endless correction, like on March 12. Before the big drop, Thies said that $4,800 seemed the next logical level of support based on previous areas of high trading activity. Thies said that before the fall to $3,000:
“It looks like Bitcoin may have been caught by the $5.6K leakage rate from 2019. For the upside, the only good sign at the moment is that it technically confirms last year’s outbreak as a legitimate trend change from the 2018 downward trend, with a successful back-test of that outbreak range”
The price of Bitcoin fell below all major supports, even beyond the last support which was at $4,800 on all major exchanges, as virtually all lengths in the market were eliminated within several hours.
A screenshot shared by the well-known crypto-currency trader “I am Nomad” showed a BitMEX investor losing 1,220 BTC overnight, which would have been the equivalent of $9.7 million before the crash.
More than a billion dollars of longs were liquidated in the last two days at BitMEX alone, precisely because large longs above 10 million dollars began to be stopped or liquidated, which then became strong selling pressure.
Industry executives remain positive after the big drop
Following the 50% drop in Bitcoin’s price, leading industry executives overseeing the sector’s largest investment companies expressed their belief in the asset class and their confidence in the long-term trend of the market.
Michael Sonnenshein, the chief executive officer of Grayscale – which oversees the Grayscale Bitcoin Trust, a publicly traded Bitcoin investment vehicle with some $2 billion in assets under management – said he has not doubted his faith in the crypto industry and the community in the midst of this extreme volatility:
“I’ve been on my digital currency journey for over 7 years. Years ago I would wake up in the middle of the night to check the prices or let my stomach turn when the market was plummeting, but I never lost faith in what this incredible community has built. Stay strong. HODL on”
Galaxy Digital’s billionaire CEO, Mike Novogratz, said that investor confidence around the world in almost all assets seems to have declined, making Bitcoin even more valuable in the long run. Paolo Ardoino, Bitfinex’s chief technology officer, said that one day does not make a market, adding that:
“Bitcoin is a battle-tested asset that will eventually prove its underlying strength as a true store of value. While Bitcoin has grown to bear fruit during a period of massive Central Bank Quantitative Expansion, in time it will prove its metal as these policies are sure to begin to fail”
According to Thies, one positive way out of the market downturn is that it occurred earlier this month, leaving more time for Bitcoin to recover and stabilize. If the drop had occurred in late March, it would have caused longer-lasting candles like Bitcoin’s monthly candle to close with a drop to $3,000, which could have set an intensely negative precedent for the coming months. Thies concluded:
“While we are not sure what chaos is happening in the media and markets from here, know this: Shop when people are afraid. Sell when people get greedy. Times like these, when push and shove are causing catastrophic results, are typically a sign of true capitulation and often a time to counteract the masses”