There's Blood in the Streets...
Run for cover, the market is in meltdown! Bitcoin has fallen 16% this week alone. This is what the chart looks like right now... it's not pretty... note the big red moves down over the past few days. The market is making lower lows. That's generally not a good sign.
Optimists will note that the price is still up over 100% from the lows of this year. Pessimists will flag that it's now down 50% from the highs of this year and the market is in capitulation mode.
Either way, it's not good for the cryptocurrency. For example, Fidelity, one of the world's largest asset managers (they manage close to $3 trillion), has recently announced plans to open up the crypto markets to their clients. The issue however is that the huge price swings of late are hardly a good advertisement for prospective customers. It's tough to look at the above chart and think it looks like a buy.
In term of damage done to traders on one particular site that I follow. $268m of long positions have been "Rekt" in the last 24 hrs alone. That term is otherwise known as "liquidated" or in simple terms "losing all your money". That's a lot of cash thrown away in a single day, especially in a relatively small market....
Now it's important to note that these losses were for traders with "leveraged" bets on. Anyone just holding Bitcoin in a normal account would have seen a frustrating decline in value, it wouldn't have been lost.
If there's anything to learn from these wild moves, it's that buying and holding really is the best way to own Bitcoin. Trying to trade it is extremely difficult. You don't want to end up in the "Rekt" bucket above....
So what's behind the move?
The frustrating thing is that there's no obvious reason why. No negative news flow. No real catalysts. More sellers than buyers would be the obvious answer but for every seller there must naturally be a buyer, its a 1:1 relationship. More aggressive sellers than buyers is the reality. But why?
I've wanted to write a post about this subject for a while but it's a tough one to prove and is fairly complicated. There's no doubt however that there is a large amount of manipulation in the crypto markets.
They are structured as such that the price can be moved relatively easily and policed as such that nobody will come looking for you.
Without boring you with too many details, this is largely because derivative exchanges drive a large percentage of the volume, which can be used to move the regular "spot price". Also, a lot of rules that apply in more regulated markets such as equities, do not apply in crypto. If someone wants to manipulate the market and has the source of funds to do so, the authorities will likely not be chasing them.
Remember this guy who was jailed for being responsible for the flash crash of the Dow Jones in 2010? Probably not, but he faced a maximum jail term of 30 years for being behind a 9.2% manipulated move. This level of policing simply doesn't happen in the crypto world. Also, 9.2% moves are regular occurrences.
We can't help manipulation but we can accept that these wild swings occur. They have throughout the history of the asset and I doubt that will end anytime soon. At least not until regulators reach the point of chasing "bad actors" such as the above chap.
To end on a positive note however, Baron Rothschild, an 18th-century British nobleman and member of the Rothschild banking family, is credited with saying that...
"the time to buy is when there's blood in the streets."
That's how he made his fortune. It's called "contrarian investing" and based on the belief that the worse things seem in the market, the better the opportunities are for profit.
I'm not giving you financial advice here. Always do your own research and make decisions accordingly. But if you believe in the future of Bitcoin and crypto in general, the current capitulation could be seen as an opportunity...