Crypto Crashes to 10 day low! – What next?

Bitcoin falls to its lowest price in 10 days!  Ethereum lower than last week!  Perspective is everything…  Take advantage of our Black Friday 1% off all crypto sales special today only (Excluding AUS and AGS).

After rising 225% since the last correction in March (in AUD as with all numbers following), yesterday Bitcoin fell as much as 15% before settling this morning at a still healthy correction of 11.7% down from Wednesday night’s high of $26,400.  Year to date you can see in the chart below, yesterday’s drop exceeds that of the September correction as well:

For Ethereum the news was similar.  After rising 380% (nearly quadrupling) since the March drop, Ethereum dropped a similar 18% from a high of $820 to $670 and now back up to $700 at the time of writing.  Again per the chart below, you can see this drop wasn’t as large as that in September when the DeFi euphoria got a little ahead of itself before a healthy correction:

So of course now the million dollar questions are why did this happen and where to from here.  As with any drop such as this the catalyst is often different to the accelerant. From Bloomberg:

“The rout began just hours after Bitcoin rose to within $7 of its record high of $19,511, the culmination of a more than 250% surge in past nine months. Fears over tighter crypto regulation and profit-taking after a frenetic rally were among the reasons cited for the sudden drop.

The sell-off gathered pace late Wednesday after Coinbase Inc. Chief Executive Officer Brian Armstrong tweeted about speculation the U.S. is considering new rules that would undermine anonymity in digital transactions.”

CoinTelegraph’s take:

“Two key trends caused the recent Bitcoin correction. First, whales [big holders] began to sell BTC at around $19,000, resulting in a downside volatility spike. Second, this relatively small price drop triggered a cascading wave of liquidations in an overleveraged futures market.”

In other words we were in an overbought, over leveraged position and it is the correction ‘we had to have’.  Thus is the nature of markets and certainly nothing new to one of the most ‘organic’ markets around in its early adoption phase.

What is also certain is that this may not be over and bottoms are as hard to pick as tops.  The (too) visual analogy is ‘only monkeys pick bottoms’, but it couldn’t be truer.  Averaging in and out are smart ways to play any volatile market.

The best question you can ask yourself after any shakeout is ‘what has fundamentally changed’ in terms of why you bought the asset.  

If indeed issues of privacy legislation were a catalyst we can only observe that this seems completely incongruent with the driving forces behind this BTC bull market.  This year has dished up a platter of large institutional, corporate and mega payment platform adoption of Bitcoin and Ethereum amid an environment of unprecedented debasement of currencies and economic uncertainty.  We’d respectfully suggest that days of privacy being a large driver of the BTC price are long gone.  2020 has heralded Bitcoin and Ethereum becoming large respected hard financial assets being adopted by more and more ‘big money’ unfazed by such matters.  For a market still relatively in the early adoption phase this takeup is extremely exciting.  Nothing can keep going up like crypto has in the last weeks without healthy flush outs and profit taking.  Check your emotions at the door, keep diversified across hard assets and if lucky enough to buy dips, take those opportunities when you think they present themselves.

This is exactly what we have seen in gold and silver this last week, with those buying the dip with both hands and often out of crypto profits.  As we wrote yesterday, nothing has materially changed in terms of the fundamentals.