The Bitcoin price index dropped heavily on 12th and 13th of March this year. From a high of $9,800, the price index dropped to around $3,800 in on March 13 before recovering a little back to the $5,000 mark recently. This represents more than 40% drop in a single day. The price drop caught many people by surprise as many had anticipated a stronger market in face of the upcoming Bitcoin halving mechanism in May. The sellout left many buyers trapped who then liquidated and caused a lot of panic before the price index stabilised again.
Once the short-term bloodbath was over, traders and other market stakeholders began to try to understand what caused the crash. There are different reasons why Bitcoin fell the way it did hardly a week ago. Many experts have theories regarding it and they back up their logic with sound proof as well.
Lets take a look at the top five legitimate reasons that could have caused the substantial price drop:
Whales are bitcoin holders with vast amount of BTC in their wallets. Before the massive crash happened, Whale Alert, a Twitter account that follows and reports BTC movement of accounts with large sums of Bitcoin showed a significant surge in Bitcoin related activity particularly related to accounts with big hoardings of the cryptocurrency. Historically, it has been witnessed that whenever Bitcoin gets moved around too much, it means that big whale or whale(s) are planning a dump in the market. Back in June 2019 and April 2018, the flurry of activity of whales into Bitcoin exchanges resulted in a significant price drop each time.
Due to this, massive changes in prices can be witnessed. Since the point of this movement was to sell, Bitcoin dropped sharply within a day of this flurry of transfer activity. Due to this ability of whales to affect the market price, it is always extremely useful that the traders follow the wallets who have thousands of Bitcoin and plenty of potential to manipulate the market by dumping and then buying again when it is low.
As soon as the Coronavirus began spreading across the world rapidly enough, the World Health Organization (WHO) declared it a pandemic and the whole situation panicked entire cities and populations around the world. Hordes of buyers thronged the supermarkets and bought toilet paper, non-perishable items, grains, masks, gloves and all sorts of survival goods in large quantities. This happened so fast that there was an absolute shortage of these items and price went up due to the affected supply chain mechanism.
Since most supermarkets do not accept Bitcoin, many medium and small investors had to liquidate their money to buy these essentials to prepare for a worrying future. This likely caused further pressure on Bitcoin price index and brought it even lower. This shows that even though Bitcoin’s importance is growing, it is not yet a readily acceptable currency for now and may fluctuate if a demand for cash increases tremendously due to prevailing conditions.
The stock exchanges and other markets around the world crashed spectacularly in the buildup to Bitcoin’s own crash back on March 12th. It was previously believed within the Bitcoin community that Bitcoin was a kind of safe haven like gold and wasn’t linked to the pumped up markets especially the wall street types. While it may become true in the longer-term, it can easily be seen that the trading community doesn’t share this exact belief and dumped a lot of coin in the trades for cash and followed the market’s dive but even deeper. The interesting thing is that Gold, the traditional safe haven also dropped considerably against the fiat currencies as it is hardly accepted anywhere around the world.
So, the markets crashed, gold crashed and Bitcoin also crashed. These are some of the learning points from the recent activity. It turns out that hard cash is seen by many as a safe haven rather than conventional instruments.
While HODLers in the community still occupy a strong role and didn’t sell their crypto, it can also be easily seen that speculative traders who donot believe in the decentralization philosophy still affect the price index heavily, even if on a short-term basis. Bitcoin short or short-term trading as it is called started the whole move and the trades kept dropping further and further. The activity showed that many traders were liquidating their options to put their cash into better alternative investments. Many saw the stock market crash as an opportunity to buy in and went for it.
The Bitcoin community doesn’t have the government protection like the stock market which is even now stalling despite a $1.5 trillion bailout package announced by the US Federal Reserve and other countries around the world. But, rather it relies on the stubbornness of the long-term HODLers to help stabilize the price eventually and keep increasing its worth in face of a heavily inflationary currency like the USD.
Last and the most important reason: The 200-day moving average. The 200-day moving average is a VERY important metric of the Bitcoin world. Whenever the price index has gone below the 200 day moving average, it has resulted in a heavy price decrease (at least 25%) every time this has been witnessed. It is called a death cross and was witnessed on March 11, 2020 just one day before the price tanked heavily.
Conventional traders give a lot of importance to the 200-day moving average. It shows that in the long-term Bitcoin’s price index is failing to perform well and adds on further pressure to the asset. This proved to be true this time around as well. Many believed that this so-called death cross would be avoided but it wasn’t. The death cross happened and the price tanked spectacularly.
There are a wide range of possible reasons why Bitcoin crashed on 12th and 13th of March 2020. There is no consensus on the matter but traders will need to follow these variables to anticipate the next crash and trade when it proves to be useful.
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