Bitcoin shaved off a clean 20% in trading early Monday, having failed to establish itself above $40,000. The index of all the crypto assets came down with it, with analysts calling the decline a healthy correction for an overheated market.
âHefty spot selling against an over-levered market caused the price drop,â trader and analyst Alex Kruger told CoinDeskâs Omkar Godbole. It is unclear whether it was miner selling or macro traders liquidating positions.
JPMorgan saysâ¦
A bitcoin exchange-traded fund (ETF) might depress bitcoinâs price in the short term, if approved, by putting pressure on Grayscaleâs Bitcoin Trust (GBTC), currently the most popular way for Wall Street firms to gain exposure to bitcoin, which comes with a heavy premium. Long term, a bitcoin ETF would be positive for the ecosystem â but first the SEC has to sign off. (Grayscale is owned by CoinDesk parent DCG.)
Block none?
Dan Larimer has left Block.one, the company behind the EOS blockchain that raised $4 billion in a 2017 initial coin offering. The former chief technical officer and co-founder Larimer said he will pursue personal projects including building censorship-resistant technologies, adding specifically the EOS-attached social platform âVoice is not immune from the censorship pressureâ seen in recent weeks.
Mining reset
Bitcoinâs mining difficulty reset last week at a record high. According to the tea leaves, itâs now 11% harder to mine bitcoin than it was in the last difficulty cycle, a programmatic accounting of power contributed to secure the Bitcoin network. âA new difficulty all-time high is no surprise considering mining revenue has tripled in recent months,â said Edward Evenson, business development lead at Braiins, a mining software company.
Inverse relationship
Bitcoin slumped below $33,000 in early Monday trading, just as the U.S. dollar appeared to make gains. The Dollar Index, which tracks the greenbackâs value against major currencies, is at two-week highs near 90.50 (up from a 33-month low of 89.21 set Jan. 6), according to CoinDeskâs Omkar Godbole. Some see the inverse relationship between BTC and USD as a sign of bitcoinâs maturation as a macro asset.
Sell-off
With prices dropping by double-digit percentages across nearly all crypto assets, the total crypto market cap shed some $156.8 billion in the past 24 hours, according to Messari data, and stands around $867 billion at press time. This comes just five days after the crypto market table crossed the $1 trillion level for the first time.
There isnât yet a clear consensus cause for a nosedive in assets like bitcoin, ether, xrp and other large-cap cryptos. Analysts are pointing to over-levered market conditions, increased selling from bitcoin miners and growing bearish sentiment in traditional markets during a period of political instability in the last weeks of U.S. President Trumpâs tenure.
There are some visible cues on the bitcoin blockchain that help piece together the story as it was unfolding. Crypto trader @lightcrypto pointed to one Coinbase sell order for 180 BTC (a multimillion-dollar sale) that preceded a $1,200 drop, CoinDeskâs Omkar Godbole wrote.
Crypto is not the only market where individual sellers and buyers can have such a pronounced impact on price. The history of the stock market is punctuated by stories of short sellers, companies cornering markets and manipulating prices as well as panic selling and bad decisions.
Thereâs the story of two commodities traders who cornered the onion market in the 1950s. That market manipulation caused prices to crater and led to the Onion Futures Act, which bars futures speculation on onions as well as âmotion picture box office receipts.â
More recently, in March 2020, during the early days of the coronavirus pandemic, a writer in Forbes wrote about how bearish billionaire investor Bill Ackmanâs emotional CNBC interview caused one of the largest sell-offs in economic history.
âHell is coming,â Ackman reportedly said on live broadcast. âShut it down now,â he said of the economy. âThere is a tsunami coming.â The Dow Jones Industrial Average tanked over 1,000 points while he was on the air, triggering a circuit breaker. Forbes reported Ackman took out âdoomsday hedgesâ to short sell the market in January.
During this coronavirus-induced market rout, media companies and analysts pointed to Warren Buffettâs sage advice, proffered in a 2017 shareholders letter, that downturns are inevitable. As an investor for the long term, Buffett said the best move is the easiest: buy and hold. He quotes Rudyard Kiplingâs âIfâ:
If you can keep your head when all about you are losing theirs ...
If you can wait and not be tired by waiting ...
If you can think â and not make thoughts your aim ...
If you can trust yourself when all men doubt you ...
Yours is the Earth and everything thatâs in it.
Still, cryptoâs volatility can be painful. This market drop, seemingly out of the ether (not the crypto), is the largest intraday loss since March, CoinDeskâs First Mover notes.
Itâs why government bodies, like the U.K.âs Financial Conduct Authority (FCA), are taking steps to protect retail and smaller investors. Last week, a long-simmering ban on leveraged derivatives products went into effect, while today, the watchdog issued a statement highlighting the risks of investing in crypto.
âInvesting in crypto assets, or investments and lending linked to them, generally involves taking very high risks with investorsâ money,â the agency said. Investors could lose âall their money.â
During the run-up, many bitcoin bulls pointed to changing conditions indicating the sustainability of a rally to a high around $42,000. Institutional investors and corporations loaded up on the inflation hedge, contributing to the growing sense of bitcoinâs role as âdigital gold.â
Many havenât lost the faith. Though as Guggenheim Investments Chief Investment Officer Scott Minerd succinctly said: it might be âTime to take some money off the table.â
