Photo by Dmitry Demidko on Unsplash
And why it possibly still is the safe-haven asset it was meant to be
#Bitcoin crashed by about 50% yesterday. While many say that this proved that it is not the safe-haven asset it was meant to be, the cryptocurrency’s crash might actually not have been caused by the current crisis that the stock-market is experiencing.
A Whale’s Awakening
“I mined some bitcoin for a little bit, a long time ago; back when it was still possible to mine with GPU.
I haven’t been active here for a long time.
How do I move my BTC to sell?”
This was posted on the forum of bitcointalk.org on March 10th by a person who goes by the name “whoamisoon”.
On the same date this transaction was recorded on the blockchain:
The massive sum of 1000 BTC that had not been moved for about a decade was moved in this transaction, being worth around 8.000.000$ at that time.
Two days later —therefor yesterday, on the day of the crash— the unknown miner posted the following:
“Thank you all for all the suggestions. It was overall a great return and the best welcome one can get!
Keep it up; I can see it helping others that are in my shoes as well.”
An illiquid and overleveraged market in the midst of a recession
The problem with trying to sell such a vast amount of the cryptocurrency spot is that the whole asset class is still tiny compared to other markets.
A whale (somebody who owns a lot of Bitcoin) moving such huge amounts of money in a market that is comparatively illiquid and very overleveraged can cause a cascading effect that liquidates a lot of traders, causing an avalanche that pushes the price down further and further.
“I think the first order effect that happens if we have a recession is crypto crashes because all the liquidity dries up which is a classic effect and symptom of a recession. […] All of those things are really a symptom of the fact that we have a small lifeboat and a very, very large number of people who need saving.” — Andreas Antonopoulos
So while the current situation on the global stock market possibly has an impact on the liquidity of the cryptocurrency markets, there’s a chance that Bitcoin’s worst crash in its history since the Mt.Gox incident has been caused by one guy selling a lot of it in an insecure, illiquid and overleveraged market.
Add to that the PlusToken scam that recently sold a lot of Bitcoin, the #Coronavirus that sparks fear across all asset classes and a general demand for cash and you get the perfect storm.
There’s no denying the fact that this whole market move once again showed how underdeveloped and early the whole cryptocurrency market is. If somebody can move a market like that with as “little” money as that it doesn’t speak for the maturity of the whole scene.
There’s also no denying that a lot of trust in Bitcoin was lost in the past days.
It was meant to act as a safe-haven asset during a financial crisis and it did not deliver on this promise.
But it might be too early to say that Bitcoin is no safe-haven asset because it failed to act as such at the first possible situation.
Maybe it will be so in the future, for now, it’s too early to tell.
Where does it go from here
Nobody knows and anybody claiming to do so is probably just as clueless as you, me or anyone else.
Time will tell, just as always.
But if history repeats itself, as it so often does, Bitcoin tends to reward people who stay in the game for a long time compared to those, trying to time the market and sell as an emotional reaction to large movements.
If you believe that we haven’t seen the last all-time high in Bitcoin when it hit 20,000 USD back in December 2017, then sit back, take a breath and relax.
And hey… Maybe even enjoy a -50% discount on the best-performing asset class of the last century.
As they say: #BTFD and #HODL.
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This is not financial advice but for entertainment purposes only. I am not a financial adviser and these words reflect my personal opinion only. If you need financial advice, ask a professional.