BTC Volatility: Bitcoin Drop Related to Hedge Funds, Coronavirus or Plustoken Scam?
Despite the slight recovery above $8,000 that has transpired over the past couple of hours, Bitcoin remains decisively down on the week, trending far lower since the $9,200 high was established on Saturday.
In fact, from the top, the cryptocurrency has lost 12%, underperforming traditional markets.
As just a few days earlier, investors were charting a further breakout for Bitcoin — evidenced by the hundreds of millions of BitMEX longs liquidated in the subsequent drop — many have been left wondering as to what caused the crypto market to drop so far, so fast.
Some analysts have weighed in, providing their answers to this pressing question.
What Caused Bitcoin to Drop?
Raoul Pal — a former executive at Goldman Sachs and CEO of Real Vision — suggested that the recent drop in the price of Bitcoin may be related to hedge funds.
More specifically, he remarked that the drop may be related to “hedge funds that were long Bitcoin having to liquidate,” citing the fact that managers need to keep their portfolio within a certain risk level, meaning that the tumult seen over the weekend with oil and the coronavirus outbreak decreased the risk (or at least increased the risk of certain assets).
It feels like any hedge fund that was long bitcoin is having to liquidate. VAR takes no prisoners. (For those new to VAR it is the measure of risk in a portfolio and is connected to volatility, so as vol goes up of all assets, they have to reduce risk). $BTC #Bitcoin
— Raoul Pal (@RaoulGMI) March 9, 2020
Indeed, Bitcoin’s volatility has spiked, corroborating Pal’s point. Though, there is a chicken and the egg situation with the volatility; more selling results in higher volatility, higher volatility results in more selling.
The ex-Goldman Sachs’ point has been echoed by Qiao Wang of cryptocurrency analytics firm Messari, who explained that Bitcoin’s drop may likely be a “major sign of institutional adoption, as it got sold in a similar way that gold got sold two Fridays ago.”
Some, however, have had other theories.
Jacob Canfield, a noted cryptocurrency analyst, shared three.
If you're looking for bearish narratives, there are currently 3 that could be impacting #bitcoin
1.) Coronavirus (all markets selling off)
2.) Miner hoarding (typically strong bearish indication)
3.) PlusToken scam dumping on the market again. (They moved 19k bitcoin yesterday)— Jacob Canfield (@JacobCanfield) March 7, 2020
- The first, the breakout of the coronavirus-caused disease COVID-19 may have dealt serious blows to liquidity around the world, hence the sell-off in nearly all assets except for Treasuries and gold (kinda).
- The second, Bitcoin miners have started to hoard coins. ByteTree founder Charlie Morris, who deals with analytics in crypto, has historically coincided “with negative returns and reflects a weaker market bid.”
- And third, the PlusToken scammers moving coins may have triggered (or at least contributed to) the sell-off. Indeed, in the day prior to the dump, the operators of the multi-billion-dollar PlusToken scam were found to have moved over $100 million worth of BTC into mixing services for privacy reasons, then presumably dumped onto exchanges for fiat or fiat equivalents.
All Eyes on Traditional Markets
While the aforementioned catalysts have the potential to continue to haunt the cryptocurrency market, so to say, leading analysts have started to eye a recovery, citing a confluence of technicals and the growing correlation between Bitcoin and traditional markets, namely stocks.
Indeed, BTC’s recent mini-rally above $8,000 from $7,700 correlates with a 4% surge in the futures of the Dow Jones and S&P 500, again showing that there may be some argument that as stocks rally, so should Bitcoin, at least vaguely directionally.
Cryptocurrency trader Flood touched on this, writing:
IMO probably a temporary bottom this week once forced liquidations and panic selling subsides. BTC highly correlated in recent weeks but leaving the 7400 level unbroken is bullish as hell.
This suggests that should traditional markets undergo a rally after Monday’s historic sell-off, which many have started to dub “Bloody Monday,” Bitcoin could begin to gain some strength as the market turns risk-on once again.
That may be a hard task, though, especially considering that the weights on the market shoulder are a potential global pandemic and a shock to the supply and demand of oil.
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OhNoCryptocurrency via https://www.ohnocrypto.com/ @Nick Chong, @Khareem Sudlow