Bitcoin and cryptocurrency investors have enjoyed a prolonged bull market over the last 6 months since the March Covid-19 crash but even as Bitcoin flirts with a US $10,000 price point, the bulk of the community remain upbeat despite the dip. While there is a lot of conjecture swirling around the crypto-sphere right now, let’s leave speculation aside and take a look at two non-market reasons that may have contributed to the flash crash.
South Korean authorities raided the headquarters of Bithumb which is one of the countries largest exchanges - with CoinGecko.com reporting a 24-hour trading volume over $365 million. The exchange has been subject to an ongoing fraud investigation that implicates the chairman of exchange. Shortly after the raid BTC lost 4.5% of its market value, and while the price was over US $12,000 it has lulled at around US $10,000 at the time of writing.
The Bithumb investigation was conducted in response to the exchange selling US $25m worth of BXA tokens without listing it - a fraudulent deal that made the token useless. As a result, investors reported losses and protested the legality of the exchange's conduct, culminating in the search and seizure of their offices.
While no bitcoin was lost, investors suffered a short-term panic.
Binance and Coinbase have a US $3.8b and US $415m 24 hour trading volume respectively (CoinGecko.com) and both exchanges suffered outages right when BTC first began to slide from its $12,000 high. The technical difficulties couldn’t have come at a worst time as investors inability to access their coins added to the hysteria surrounding the dip. The incident affected Bitcoin (BTC), Bitcoin Cash (BCH), Tezos (XTZ) and 22 other tokens and while exchanges returned to normal shortly after, the timing of the outages should be enough for investors to harbor some skepticism.
At the time of the event the CEO of Binance, Changpeng Zhao, reported that major tokens were delayed and that the platform was experiencing an all-time high in user load; attributing the failure to stress in the Ethereum network. At times of volatility, exchanges frequently go down, which makes having an account with us at Caleb & Brown vital. We source the best liquidity across all access points to the market and have numerous alternatives during exchange downtimes.
While analysts in the crypto market are divided about what caused the crash, there seems to be a consensus that the current clump is fairly irrelevant over the long-term. While there’s no shortage of crypto thought leaders who will enthusiastically proclaim to “buy the dip”, in times of volatility it pays to rely on your own investment strategy and not get caught up in hysterical shrieks of buy and sell. Having a wide range of trusted sources is always beneficial during uncertainty as well as a thought out risk management strategy. (For more investment fundamentals see our recent article)
While this year's crypto market has been bolstered by the dilution of fiat currencies due to global stimulus measures in response to the corona epidemic, a lot of the short-term BTC price change has been closely pegged to the movement of U.S stocks. Nonetheless, 2020 has seen huge developments in infrastructure, regulation and consistency right throughout the crypto-sphere and BTC has proven to be a reliable store of value over the long-term.