Markets Weekly: Bitcoin – s Fresh Year Starts With a Crash
Bitcoin’s price crashed overheen the Fresh Year weekend, losing $51 overheen two days. According to the CoinDesk Bitcoin Price Index, the currency opened on Saturday at $314.59 and closed the following day at $263.63.
The plunging price got market watchers chattering spil Sunday drew to a close. Unsurprisingly, a quotum of bitcoin watchers waterput a positive spin on the price crash, viewing it spil a buying chance, albeit with a note of noodsignaal.
Bitcoin: blood te the streets, high volumes & $260 april high revisited. Ter other words: time to buy.
bitcoin price pulling down. my view – buying somewhere ter b/w 225-250. i’ll get very worried if it drops past 225. stay peaceful and get ready Two buy
Even among bitcoin bulls, Tim Draper’s call for Russian ruble-holders to switch from their rapidly devaluing sovereign currency wasgoed particularly ill-timed:
If I am Russian, I would be selling Rubles and buying Bitcoin now.
Another flash crash?
So, what triggered the crash? One theory is that savvy short-sellers timed their budge for the thinly traded holiday season, betting on setting off a cascading margin-call spil they nudged the price down.
Spil the price moved against traders with leveraged long positions – perhaps banking on a rise te the bitcoin price, which wasgoed trading at 2014 lows te December – a rising number of leveraged positions were closed, with coins liquidated at the prevailing price.
Te other words, it’s another ‘flash crash’ triggered by margin calls of the sort the market eyed ter August. Back then, a series of big intra-day declines drove the price from the $600 level to under $500.
That’s the theory suggested by Alistair Milne, the portfolio manager at the Monaco-based Altana Digital Currency Fund. Milne says he spotted sell orders for hundreds of coins with no limit price show up on the order book of Bitfinex overheen the weekend, which he took spil a sign that leveraged positions were being automatically closed by the exchange.
A acute druppel ter leveraged long positions lends support to Milne’s theory. US dollar exchanges on Bitfinex fell by $Two.48m or 12% overheen the weekend, spil the price plummeted. Traders on the podium use dollar exchanges if they want to bet on margin that bitcoin’s price will rise.
Still, the closed leveraged long positions of $Two.48m on Bitfinex is petite when compared with a total of $82.7m-worth of trades te the BTC/USD markets across all exchanges tracked by Bitcoinity.
Open brief exchanges have also risen steeply against long exchanges. Overheen the last 24 hours, the portion of brief exchanges has risen 25 points, from 63% to 88%. Te other words Bitfinex traders are continuing to bet that the price of bitcoin will fall.
Bitfinex interchanges ratio at 11:46 GMT. Source: BFXData
Money never sleeps, except at Christmas
The Christmas and Fresh Year holidays could have played a critical role te this short-sellers toevluchthaven. Exchanges are thinly traded overheen the holiday period, with a fall of 24% ter the final week of December compared to a week earlier, for example.
Then there are the practicalities of modern banking. With banks closed overheen the holidays, traders could be caught without dry powder te their cryptocurrency trading accounts, incapable to top up fiat funds when they need to. It all adds up to optimum conditions for short-sellers wishing to trigger margin calls.
“If you boil it all down, the price of bitcoin is tightly te the mitts of the speculators. It looks to mij like experienced traders with resources are exploiting inexperienced enthusiasts who should not be using leverage.”
Some traders think the price has further to fall. Arthur Hayes of BitMEX says more pronouncements of bitcoin’s failure spil an asset class – of the sort found on Bitcoin Obituaries, for example – need to succesnummer the market before a bottom is found.
“Not enough capitulation yet. Need a duo more media outlets telling, ‘I told you so’ about bitcoin being a bad investment,” he said.
Gavin Smith at derivatives provider Very first Global Credit advises a similar wait and see treatment, noting that the price could fall further before hitting a bottom.
The silver lining for bitcoin bulls now might be an chance to come in the market at lows that toevluchthaven’t bot seen since November 2013, before the cryptocurrency’s historic bull-run.
Milne, for one, says he’s hearing from investors who are looking to stream up on coins at thesis prices for the long term.
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