Bitcoin dropped by nearly 20% this week to a quarterly low of USD 6515 on the derivatives exchange, Bitmex. The drop marks a 50% retracement from the USD 13 880 high recorded on 26 June 2019. The liquidation engine on Bitmex was pushed into overdrive as millions of dollars changed hands from those longing to those shorting the market in a cascade that many likened to the 2018 drop from USD 6000. What was to blame for this markdown and is this a Bitcoin buying opportunity?
Many are pointing to miner profitability as being the culprit for the sudden drop. The theory, which has gained some attention, is that miners reach a point where they need to sell now in order to protect against future losses, this causes sort of race to liquidate coins and a steep price decline. The opposing argument for this is that smart miners are in fact hedged on futures exchanges, selling at the future price to lock in future prices for any substantial decline. This, however, could mean that even lower prices would have very little effect on these miners, thus it could be in their interest for prices to collapse forcing their less prepared competitors out the market. The “miners” (decentralized around the world) certainly don’t have a spokesman or a group that makes any announcements or statements so all we can do is speculate back and forth.
Well-known Crypto Twitter influencer, @WhalePanda, sums up the mental gymnastics the community enjoys engaging in when there is a big drop in price:
“Whenever the Bitcoin price drops all of a sudden everyone is a Bitcoin mining expert and talking about Bitcoin miner capitulation. Seeing a lot of bad and clueless takes again.””
China casting a shadow over Bitcoin
Another explanation that is being touted by the mainstream media gang is that China’s recent statements may have put a damper on the Bitcoin price. The Chinese authorities urged people to not confuse cryptocurrencies with blockchain technology and that the former is basically illegal. This comes as it is rumoured that China itself will be looking to launch its own digital currency soon.
The crypto trading community has a different explanation for the drop, citing normal market cycles at play. It is becoming more apparent that the recent 2019 recovery run has been a reaction to severely oversold conditions that closed out 2018, one that saw a series of short squeezes push the market very quickly into overbought territory. Many of the full-time traders in the space specifically point to the liquidation cascades that cause oversized moves within the market. Although the market looks dire for the time being, a counter move is expected.
When offered the opportunity to buy bitcoin for less it is usually an enticing proposition, however, it rarely turns out to be an obvious choice for the average investor. Markets have the tendency to cause logic and level mindedness to fly out the window when they are required most. When the market was at near USD 14 000 levels many were desperate to get Bitcoin for less than USD 10 000, and now that we are below USD 7000 many are too afraid to buy at this level. The ironic situation has left many pundits disillusioned. Many full-time professional traders and investors, however, see this as a buying opportunity of a lifetime, they have one eye on the looming Bitcoin halving and the other firmly on this 50% discount from 2019 highs. Long term buyers are accumulating bitcoin being dumped by weaker hands.
Are you buying Bitcoin at the 50% discount or will you wait for recovery to over USD 10 000 before stacking more sats? Or do you think we may have more to drop? Let us know what you think on Twitter.
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