As mainstream media show, a kind of a sale was apparent on the cryptocurrency market. The headlines report that Bitcoin was attacked by the coronavirus. How does it really look like? Are we frightening ourselves?
BTC's liquidation on BitMEX
On the 26th of February, worth over 190 million dollars on longs (long positions) and shorts (short positions) BTC was sold on the BitMEX exchange. Consequently, the transaction translated into a significant drop in the exchange rate of the leading cryptocurrency. Skew, a market data provider, was the first to inform about the event.
Yesterday's session on BTC was opened at USD 9 338.29 (according to CoinMarketCap). After 2 p.m. drops below USD 9000 were noted. Right after the incident, BitMEX noted a record number of BTC liquidations this year. In the end, the session on Bitcoin closed at the level of USD 8 820.52. This, in turn, results in a decline of USD 517.77 - 5.54%.
The current BTC price is about USD 8.700. It should be added that before halving, a great number of analysts expected significant increases in the price of BTC. The situation is different, however. As some experts claim, the event will affect the price of Bitcoin, of course, but not immediately. We cannot assume, then, that it will take place in May. It all boils down to the fact that the supply of BTC in circulation will be limited and the demand will increase. It is inevitable that, sooner or later, it will affect the coin's value. Miners will get only half of what they get for every mined block now. There is a possibility that some of them will even leave the market as mining will no longer be profitable for them. The rest of the miners will probably invest in better equipment and relatively cheap energy sources and they will continue their activities.
Is the cryptocurrency market as fragile as traditional investments? Not necessarily
A significant number of analysts are trying to attribute declines in not only the traditional but also the cryptocurrency market to the epidemic caused by the coronavirus. As Coindesk informs, as a consequence of global tension, the main indexes, for instance S & P500, fell by more than 7% during just a week.
On the one hand, what is currently happening to Bitcoin contradicts the fact that this asset could be a safe haven at a time when uncertainty appears on the stock and bond market. According to Luke Martin (Coinist analyst), on the other hand, BTC was not correlated with other asset classes. Martin explained this relationship in one of his Twitter entries.
He wrote, among other things, that the decline in other resources is not necessarily the reason for the increase in the value of Bitcoin. It means that if the price of gold increases, it does not necessarily mean that BTC will follow its lead! He summarized the thread by saying once again that no correlation is visible there.
Chamath Palihapitiya (the CEO of Social Capital) shared a similar view. In an interview with CNBC he admitted that short-term exchange rate volatility should not be too significant. He also referred to Warren Buffett's statement by claiming that he is a good investor, but he is wrong when it comes to cryptocurrencies. According to Palihapitiya, not owning Bitcoin is not a wise investment decision. Moreover, he added that a reasonable strategy for everyone would be to put at least 1% of net worth in something unrelated to the world and the way it operates. For the CEO of Social Capital, Bitcoin is a kind of protection against traditional investments.
It is worth remembering that the cryptocurrency market is unpredictable. It is mainly ruled by emotions. The conclusion at this point is that the media are largely responsible for the mood that prevails on the market. Novice investors unnecessarily panic, paying attention to information that does more harm than good. It is no wonder, then, that panic comes into action, as it can be seen in the screen below, which shows the fear and anxiety indicator. Yesterday, it was 41 points.
It woudl be too bold to say that the outbreak of the coronavirus epidemic did not translate into the Bitcoin market in any way, of course. It can be seen here that stagnation among cryptocurrency miners has been visible in recent weeks. After the introduction of quarantine in China, there was a delay in the production and shipment of mining equipment by leading manufacturers which translated into a slow increase in the difficulty of mining.
It can be said that it is the only information that adds real value when it comes to Bitcoin and attempts to link it to the coronavirus epidemic. What is your view on the topic? Share your opinions in the comments!