Once the bleeding finally stopped, crypto investors were left with two paralyzing questions: what happened, and where does bitcoin go from here?
Diagnosing Bitcoin’s Brutal Plunge
Jaded investors got what they wished for Tuesday as volatility washed over bitcoin and the broader cryptocurrency markets, obliterating a major support level around $9,000. One of the most brutal dumps in 2019, it saw a jaw-dropping $37 billion wiped off the entire crypto marketcap in the space of 24 hours.
While the markets have been mostly stagnant for the past few months, this latest retrace is particularly unwelcome, taking BTC back to a price not seen in three months.
Analysts say that the technicals point to BTC reaching the apex of a descending triangle – a bearish formation, typically indicative of a reversal.
Prominent crypto trader Josh McGruff even called the dump ahead of time. He explicitly highlighted the triangle and nailed the prediction with near-precision.
Speaking to CCN, Mati Greenspan, eToro’s senior market analyst, also highlighted this pattern:
“The bearish technical pattern has been playing out for a few weeks now and it seems to have finally snapped.”
However, fundamentals probably played a role as well, and there has been no shortage of potential triggers.
Everything’s Completely Bakkt
It became somewhat of a meme to blame Bitcoin’s lackluster activity following Bakkt’s launch on the platform’s miserable first-day performance. Following the disappointing launch, Bitcoin exhibited a lull, ebbing from $10,000 to $9,600.
According to eToro’s Greenspan, Bakkt was likely instrumental in Tuesday’s major dump. The analyst attributed the hype-versus-reality nature of Bakkt to a principal loss of sentiment.
“The main catalyst seems to be the underwhelming volumes of Bakkt’s bitcoin debut on Wall Street. Traders have been buying this rumor heavily for months and it seems that they’ve now sold the news.”
Also speaking to CCN, analyst Alex Krüger seemed to agree with Greenspan, adding that Bakkt’s launch converged with a bearish technical setup to ignite the sell-off.
“Bakkt disappointment was the trigger that emboldened sellers. The rest was entirely technical. Momentum kicked in, very large sellers sold at 9300, and the rest was all stop losses/liquidations that accelerated once below 9000 – as everyone should have expected given the extensive consolidation period.”
The Classic BitMEX Long Squeeze
Whenever anything goes wrong in the crypto markets, investors instinctively look at margin trading platform BitMEX.
Their 100X leverage has become the stuff of legend, and equally drums up stories of horror as most of the market’s biggest liquidations occur on the exchange. Indeed, once more BitMEX is a suspect in the dump, and while probably not being the leading cause, it’s certainly a likely contributor.
During yesterday’s dump, more than $600 million worth of bitcoin longs were liquidized on BitMEX. Skew Markets, a data analytics firm, suggested – much like Krüger – that this had quite a lot to do with the dump, leaving Bakkt as the convenient scapegoat.
It’s highly probable that the mass liquidation caused a long squeeze – where leveraged investors with long positions sold into a plunging market to cut their losses, creating a domino effect.
CME Bitcoin Futures Expiry Conspiracy
One other potential catalyst for the crash may be the upcoming Chicago Mercantile Exchange (CME) bitcoin futures expiration.
Another month, another perfectly timed bitcoin slump. As usual, BTC appears to be reacting to the monthly expiry of the CME futures contracts. This phenomenon has been occurring as far back as April, and it doesn’t seem to over just yet. Each month, dead-on the futures expiration week, bitcoin has realized losses to a degree of around 8% on average.
Regardless of the percentage, a slip transpires. Every. Single. Time.
This has become such an excepted practice that a few traders have based their positions around the event:
This appears to be the case once again, only to a much larger extent. Why now? No one is entirely sure. It may be a pure coincidence, or it could be manipulation.
The Federal Reserve Pump (Wild Card Theory)
Before you get all excited: No, the Fed hasn’t been dabbling with bitcoin to catastrophic effect, but it has been tinkering with interest rates in the overnight market, via repo agreements.
What does this all mean?
Last week, banks across America ran low on funds, causing lending rates to rise and forcing the Fed to pump billions into the financial sector. Travis Kling, head of crypto asset management firm Ikigai, believes this could have impacted BTC.
Underneath the tweet, Kling wrote:
“The repo market situation is a symptom of a larger situation that has been dubbed the ‘dollar shortage.'”
Again, Kling’s thesis isn’t shared by the majority of analysts.
What’s Next for BTC?
As for what happens now, the sentiment appears to be reasonably bearish.
The “fear and greed index” – a tool that estimates market sentiment – is currently giving a reading of 15, indicating shallow optimism. The index measures its findings via data gathered from multiple sources, including surveys, BTC dominance, social media sentiment, market volatility, and Google trends. A reading of 100 indicates pure optimism, while 0 betrays “extreme fear.”
While sentiment may be on the low side, technicals may prove to be BTC’s saving grace. According to Greenspan, bitcoin is currently pushing against a critical level of support:
“At the moment, bitcoin is testing it’s 200 day moving average, a technical indicator that has been a key metric for bitcoin’s trend for several years.”
This has been pointed out by a few other analysts today. Josh Rager noted the need for this level to hold, or else BTC risks far more losses.
One man who doesn’t believe – or care – if BTC will hold this moving average is gold bug Peter Schiff. Likely reveling in yesterday’s decline, Schiff provided his own prediction, suggesting that BTC could head as low as $4,000.
Krüger admits that while he doesn’t have the divination prowess that Schiff clearly possesses, he does believe that price may have room to move lower:
“I have no crystal ball but looking for another test of 8000 into the upper 7000s. That’s a good area for price to stop trending lower. It becomes a bear trap once price moves above the breakout point, which was 9300.”
Nevertheless, there is one last hope of longer-term reprisal – a famous prophecy made eight months ago on the darkest depths of 4chan:
$16,000 by October, the anonymous 4chan user predicted. “The charts never lie.”