Crypto’s Brutal Weekend

Posted | 20/04/2021 / Views | 1606
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On Sunday we saw Bitcoin plunge 15% within a matter of hours, dragging the rest of the market down with it. Despite this action, long term fundamentals remain as strong as ever. Let's dive into why the dip occurred and why now may be the perfect time to enter/top-up.

Speculation that the US and other regulators are looking to introduce tighter rules for crypto exchanges regarding reporting cross-border transactions, threshold transactions and suspicious transactions, plus greater KYC, to bring the sprawling sector into line with fiat-based money transfer and remittance businesses. Additional rumours point to a “whale” sending 9000 BTC to Binance and selling into the market.

Popular crypto analyst Willy Woo summarised what happened on Sunday in a Twitter thread writing the following:

“#marketupdate, breaking it down, post mortem.

We just saw the single largest 1-day drop in mining hash rate since Nov 2017. The hash rate on the network essentially halved, causing mayhem in BTC price as it crashed.

Crypto’s Brutal Weekend

The power outage in Xinjiang (which powers a significant amount of the BTC mining network) was known before the BTC price crash. 9000 BTC was sent into Binance, read that as a sell off of those coins. I'd note that Binance serves volume from Asia more than the West. It's likely this was sent in from a whale with closer knowledge to happenings in China.

Crypto’s Brutal Weekend

This sell down was compounded by sell off of quarterly futures (used by more sophisticated traders) on derivative markets which was already underway as early as 13th April.

Crypto’s Brutal Weekend

The two combined sell pressures was sufficient to tip the price below liquidation levels ($59k). This triggered a cascade of automatic sell-offs in a chain reaction. $4.9b contracts were liquidated, $9.3b including alt-coin markets. 1m trader accounts liquidated in total.

Crypto’s Brutal Weekend

This dip happened while unprecedented numbers of new users are arriving onto the network per day. There's been a retail influx in the last 2-3 weeks.

Crypto’s Brutal Weekend

Strong holders are buying this dip

Crypto’s Brutal Weekend

Supply profile (price when the supply last moved), now forming the largest cluster of price discovery since BTC was below $10k. Validation of BTC as a trillion dollar asset is immensely strong. 13.5% of the entire BTC supply last moved above $1T cap.

Crypto’s Brutal Weekend

The on-chain SOPR metric near a full reset. A classic buy the dip signal. In simple terms, profit taking by longer term investors is completing, very little sell power left unless investors want to sell at a loss from their entry price. Unlikely in a bull market.

Crypto’s Brutal Weekend

Summary:

  • Initial sell-off due to anticipation of miners going offline in China.
  • Sell pressure was sufficient to trigger liquidation of short term speculator positions forcing price violently down.
  • Longer-term fundamentals are very strong.

So, while this massive drop in Bitcoin’s price is unpleasant for HODLers, it should serve as a reminder of just how unpredictable it can be. That’s why if you’re considering an investment, it should surely be for the long run.

Despite one short-term blip on what looks to be Bitcoin’s meteoric long-term rise, many investors and analysts still consider the cryptocurrency a buy. This makes the current dip a great chance to load up on more Bitcoin investments or get your foot in the door if you haven’t already.

The trouble is knowing how much to buy. While dollar-cost averaging can help, it's impossible to know if Bitcoin will continue its rebound quickly or sell off further, offering an even bigger discount.

This is all the more reason to make a long-term investment.