On Monday (April 27; around 00:55 BST), the price of Bitcoin went above the $7,700 level for the first time since March 12, the day that saw Bitcoin’s price drop below $3,500 on some crypto exchanges due to the liquidity crisis caused by the COVID-19 pandemic.
What Exactly Caused the March 12 Crash?
Crypto Exchange Coinbase talked about this crash in a blog post published on March 30 that attempted to answer the following question: if Bitcoin is an uncorrelated asset that is meant to act as a “safe haven” during times of turmoil, why did the Bitcoin market still crash 50% (“the single largest one-day drop in Bitcoin’s price since 2013”) on March 12?
Just one day earlier (i.e. on March 11), when Bitcoin was trading around $7,945, the World Health Organization (WHO) had announced that “COVID-19 can be characterized as a pandemic.”
We also had President Trump’s “30-day travel ban between the United States and Europe” as well as Italy’s Prime Minister putting his entire country on lockdown.
Coinbase says that the growing realization that the “global economy was not in a place to adequately handle the shock” resulted in a huge crash in the traditional financial markets, with “the S&P 500 and DOW Jones dropping nearly 10% in the biggest one-day slide since the Black Monday crash of 1987.”
So, here is what happened on March 12, according to Coinbase:
“When investments sharply fall, investors naturally seek out ‘safe haven’ assets — things that will not lose their value (usually USD).
“But everyone rushing to the exit at once produces a liquidity crisis, where the number of sellers far surpasses the number of buyers, which further drives prices lower and lower.
“To add insult to injury, many large asset allocators held leveraged positions, where only $1 of real value was backing ~$2-$3 of borrowed value.
“When markets crashed, these leveraged positions were in jeopardy of becoming insolvent and being forced closed, further placing a premium on USD.
“The general sell-off combined with a massive deleveraging event resulted in an intense rush for cash.
“In these moments, investors do not sell what they want to sell, they sell whatever they can. This includes Bitcoin and other cryptocurrencies, but every liquid market saw deep losses on March 12th.”
More specifically, in the case of Bitcoin, the reasons for the crash were quite similar:
“Some short term speculators sold, some institutions required cash for margin calls elsewhere, and some leveraged positions were forced to close.
“But it dropped harder and faster for Bitcoin than traditional markets for one central reason: the size and scope of leverage in the Bitcoin industry.”
Bitcoin Price Goes Above $7700 Level on April 27 for First Time Since March 12
Here is a BTC-USD price chart provided by CryptoCompare that lets us see Bitcoin’s price action since March 11:
Around 00:55 BST on April 27, the Bitcoin price went above $7,700 for the first time since March 12; at the time of writing (11:48 UTC on April 27), Bitcoin is trading at $7,729, up 0.86% in the past 24-hour period:
This means that the current Bitcoin price is within three percent of the price Bitcoin closed at (i.e. $7,945) on March 11, the day before the COVID-19 crash.
Analysts’ Comments on Bitcoin’s Recent Price Action and Where They Expect the Price to Go Next
Macroeconomist and crypto analyst/trader Alex Krüger explained why he is so bullish on Bitcoin and why he expects to see “fireworks” in the near future:
Bitcoin market analysis
+ halving soon
+ volatility relatively low
+ tight range= fireworks incoming
+ spot inflows
+ negative funding
+ market sentiment: fear
+ record stablecoin balances in exchanges= risk-reward asymmetric and skewed righthttps://t.co/tGSIz80Bys
— Alex Krüger (@krugermacro) April 23, 2020
And Mike McGlone, Senior Commodity Strategist at Bloomberg Intelligence, said earlier today that he expected both Bitcoin and gold to continue to demonstrate their resilience and appreciate in value:
In this tumultuous year, Bitcoin is gaining accolades as a stabilizing and maturing store of value, more likely to continue appreciating along with gold. Bitcoin volatility is lower than the world's most significant commodity, crude oil, and the lowest ever vs. the S&P 500. pic.twitter.com/3dxjCmNwhP
— Mike McGlone (@mikemcglone11) April 27, 2020
With the huge amount of quantitative easing (QE) being done by the world’s central banks (along with their readiness to do virtually unlimited QE, such as the Bank of Japan, which earlier today removed the cap on purchases of government bonds) and Bitcoin’s next block reward halving in around two weeks, it is hard to blame these two analysts and others for feeling bullish about Bitcoin in the medium to long term.
Featured Image by “SnapLaunch” via Pixabay.com
