Published: March 16th, 2020
– Bitcoin lost almost 50% to stand at $4,001.60 during the Thursday morning trading in Asian. The plunge saw the cryptocurrency market capitalization drop by almost $100 billion in a space of just 24 hours. The fall is attributed to the broader equities sell-off which governments have instituted to deal with the fast-spreading coronavirus.
Cryptocurrencies took a thorough beating on Thursday morning following the massive global sell-off of equities. As a result, Bitcoin plunged nearly 50%. Market capitalization for crypto also sunk by almost $100 billion. Bitcoin was exchanging at $4,001.60 on Thursday, March 13 at 02:04 UTC coming from a high of over $10,000 just a few weeks ago. This sharp plunge was exacerbated by among other things, the massive equity sell-off that is currently ongoing on a global scale.
Governments have had to adopt extreme measures to deal with the effects of the coronavirus that is spreading all over the world. According to the data shared by John Hopkins University, the number of cases of the disease reported now exceed 128,000.
The fate of Bitcoin befell the other cryptocurrencies as well. Ethereum lost 49% within 24 hours to record below $100 figures. Ripple XRP was down more than 42%.
Unfortunately, everything else is falling. In the U.S., for instance, the Dow Jones lost almost 10% or 2,352.60 points. The markets declared this performance the worst drop since the market crash of 1987, christened the Black Monday. The heightened selling affected Asian markets as well. Japan, Hong Kong, and South Korea all recorded heavy losses.
Market sentiments indicate that investors are worried about the imminent global economic fallout that the spread of coronavirus is posing. Already, businesses are disrupted since some of the most affected cities are on lockdown.
The approaches that countries have adopted to deal with the pandemic all seem extreme. Italy, which is the worst-hit European nation has opted to shut down shops and restaurants. The U.S., on the other hand, has chosen to cancel sporting events. Overall, most countries globally are encouraging their labor force to work remotely and keeping schools shut.
The past few years have seen Bitcoin slowly graduate from a regular cryptocurrency to digital gold. Investors have for some time now changed their opinion about the world’s first cryptocurrency, choosing instead, to consider it as a haven. As a result, markets have rushed to put money on the cryptocurrency every time markets collapse. This strategy is no longer tenable after Bitcoin shed all the gains it raked in this year and is now wallowing in the negative zone. It is now akin to equity since it exhibits the characteristics of a risk asset.
It seems that even the recent measures by the central banks have done nothing to assure the investors. The Federal Reserve, the Bank of England, the European Central Bank and the Reserve Bank of Australia, all recently cut their base lending rates by substantial basis points as exigency measures to cushion their economies from the effects of coronavirus.
It is only the second time Bitcoin is plunging with such thudding intensity. The first happened in early 2014 following the collapse of Mt. Gox.
Many traders, unfortunately, were unprepared despite the signs. BitMEX, a derivatives trading platform that doubles up as a cryptocurrency exchange, reported massive liquidation of Bitcoin positions worth almost $1 billion. The troubling bit and one that should have piqued the traders’ curiosity is that the vast majority of these were long positions.
The massive liquidation left many pondering. And, many industry experts have weighed in on the debate about the possible reason why Bitcoin sunk this low.
Ross Middleton who is the CFO of DeversiFi, a crypto exchange says that the liquidation is certainly because the traditional markets became overly weak. As a result, institutional investors were forced to exit the positions they held on Bitcoin.
Middleton adds that traditional standards dictate that alternative assets are the first to go when the economic situation turns for the worst. Investors, as such, are taking cash out of Bitcoin to fund marginal calls on asset classes that offer better prospects. Investors often do so while hoping that such asset classes will offer better opportunities in the short-term before the markets normalize.
Raoul Pal, a former exec at Goldman Sachs and now the CEO of Real Vision echoes Middleton’s sentiments. He said that the situation now demands that fund managers keep risks within certain reasonable limits. Raoul adds that the huge coin’s drop is caused by hedge fund managers liquidating long Bitcoin positions.
The plunge has spiked Bitcoin’s volatility, which corroborates Middleton and Pal’s point. However, it leaves the market in a chicken and the egg spot. The heightened volatility encourages more selling and as the market liquidates, the volatility will keep spiking, leading to even more selling.
Despite the gloom perforating the markets, there is still good news for Bitcoin. The coin has picked up, gaining several hundred dollars to trade between the region of $4,700 to $5,000 and analysts think this is a good indication that Bitcoin may surge in the coming weeks.
Filb Filb, a seasoned Bitcoin trader who writes for the Bitcoinist says that Bitcoin will be climbing shortly. The cites the rate of funding on BitMEX, which he says knocked the extremes close enough to the bottoms and tops, and attained absurd levels for shorts. According to him, this is an indicator of a market that is leaning short and is just about to rise.
The adverse effects of coronavirus are becoming apparent. Stocks plunged deeply prompting the markets to liquidate the Bitcoin positions. The massive sell-off drove the price of the cryptocurrency down by 50%. It affected the other altcoins as well. The future may look promising for Bitcoin. However, with governments still working on strategies to survive the effects of the pandemic, nothing is guaranteed now.