On Thursday (March 12), the price of Bitcoin dropped below $6K for the first time since 8 May 2019. This article discusses some of the reasons for today's flash crash in the crypto markets.
According to data from CryptoCompare, at 04:00 UTC, Bitcoin was trading at $7,640, down 4.28% since the start of the day.
To people who currently see Bitcoin as a risk-on asset, this drop to $7,640 was not too surprising since this morning's pre-market trading data had futures for the Dow, the S&P 500, and Nasdaq all down over 4% due to the increasing panic the the fallout from COVID-19 will be a lot worse than many had initially expected. However, what happened next was much worse. Within the next eight hours, Bitcoin had fallen by another 23.54% to $5,841; this was the first time that Bitcoin had fallen below the $6,000 level since last May.
Yesterday and in the early hours of this morning, several things happened that drmatically increased the level of panic around the world:
- the World Health Organization finally decided to declare COVID-19 a pandemic;
- all three major U.S. equity indices went into bear-market territory for the first time in more than a decade, with the Dow, S&P 500, and Nasdaq ending Wednesday's trading session down 5.85%, 4.88%, and 4.7% respectively;
- President Trump adressed the people of the United States from the White House's Oval Office, during which he talked about COVID-19;
- American actor Tom Hanks announced on Twitter that he and his wife, who are currently in Australia, had been tested positive for COVID-19;
- the National Basketball Association (NBA), which is a men's professional basketball league in North America, announced that one of its player had been tested positive for COVID-19 and that it was suspending game play until further notice.
NBA To Suspend Season Following Tonight's Games pic.twitter.com/2PTx2fkLlW— NBA (@NBA) March 12, 2020
Although during the past several weeks, there has been a lot of debate in the crypto community over whether or not Bitcoin is a safe haven asset, perhaps, some of the most astute observations on this topic have come from popular macro-economist and crypto analyst Alex Krüger. Here are some of his tweets over the past few weeks:
Good to be mindful of global markets risk appetite, even if crypto is a mostly uncorrelated asset class. Markets are falling apart. It looks overdone, but headline risk isn't over, finance people are feeling cautious and with no need to rush. This seems to have crept into crypto.— Alex (@classicmacro) February 26, 2020
I'm not trading bitcoin positionally any longer.— Alex (@classicmacro) February 28, 2020
It's feasible this week changes everything.
Investors are now looking to de-risk.
Hard to imagine the halving narrative attracting much new money as things stand.https://t.co/KCQbUopW3B
Miners have been hoarding inventory, borrowing USD against BTC collateral. Many are over-exposed.— Alex (@classicmacro) February 28, 2020
The halving will slash their profitability. It could get nasty if price is not high enough.
Crypto investors should thank crypto is not fully connected to financial markets. Otherwise it would have been decimated. But panic creeps around. $BTC at 6400 soon should not surprise anyone. These are uncharted waters. When moves of this magnitude occur, everything is possible.— Alex (@classicmacro) March 9, 2020
A few whales could panic, or could be forced to sell assets to cover losses somewhere else, or could decide to liquidate positions to take advantage of bargains in other asset classes. So when this kind of events takes place, careful with taking on too much risk.— Alex (@classicmacro) March 9, 2020
Time to pay attention. Bitcoin is trading like a risk-on asset. Not a safe haven, but the exact opposite. Following stocks down - although ironically stocks are the ones trading like low quality shitcoins. pic.twitter.com/IPqloMzQs9— Alex Krüger (@krugermacro) March 12, 2020
So, what is next for Bitcoin? Well, BitMEX Co-Founder and CEO Arthur Hayes talked earlier today -- in the 12 March 2020 issue of the "BitMEX Crypto Trader Digest" -- about where he thinks the price of Bitcoin will go over the next several months.
This is what he said:
- "... fear and uncertainty facing humanity is enough to inspire a global margin call" and that this could push the price of Bitcoin even lower than it is today:
- "While I don’t believe we will revisit $3,000, max pain probably resides somewhere between $6,000 to $7,000 Bitcoin."
- "Any crypto hedge fund that allows quarterly or less liquidity will be getting distress calls... They will be dumping coins into a falling market. That will push the price lower on the margin."
- Once central banks have cut rates to zero and started "open ended quantitative easing", expect Bitcoin to "enjoy a nice run back through $10,000 towards $20,000 by year end."
- "The time to back up the truck is when the futures basis goes flat or negative. That will signal an evaporation of optimism. Then you must surf the tidal wave of free money, and begin buying crypto with both hands."
Update (March 12, 14:24 UTC):
Around one hour ago, Binance Co-Founder and CEO Changpeng Zhao (aka "CZ") said that just because Bitcoin is not behaving like a good store-of-value in the context of the COVID-19 pandemic, it does not mean that it will not act as safe haven asset in other situations, such as during times of high inflation:
With hindsight, store-of-value comes in different contexts.— CZ Binance 🔶🔶🔶 (@cz_binance) March 12, 2020
🔸Today, with <0.1% of the population who hold/accept #btc, it's not liquid enough in pandemic situations
🔸Neither is gold, hard to carry/travel with
🔸Fiat is still the payment currency
Other contexts differ... https://t.co/X6iY56fQMZ
Other contexts differ, such as: war, stock market crashes, inflation, expensive banking fees...— CZ Binance 🔶🔶🔶 (@cz_binance) March 12, 2020