Did equity margin calls spark the Bitcoin sell-off?

If it’s true that institutional investors just withdrew from Bitcoin, then this bounce from $6,440 might signify that we have not only bottomed, but we might be about to decouple from any possible correlation with the stock market.

The math is quite simple, the S&P market cap is around $25 trillion versus Bitcoin’s pre-dump market cap of $150 billion. Simply put, institutions stood to lose more from the S&P crashing than from their Bitcoin holdings.

So, in the likely event of stock market margin calls as prices began tumbling amidst the coronavirus global panic, what was the fastest liquid asset they could realize?

The answer was most likely Bitcoin. And by all exiting at the same time (because they all had the same reason to exit) you end up with a decrease with the velocity that we saw on Friday.

Despite all this blood, there is some light on the horizon. The wick on the bounce from $6,440 has left the support line intact on the daily.

There are also a few reasons why this crash is not the death shot for bitcoin and crypto:

1. True holders are unfazed

However, the resistance to break out of this channel once and for all is currently around $12,300 and will fall to around $11,800 by April 1. So, if it’s true that institutional money really has left, then this range will theoretically hold despite any further selloffs in the stock market.

2. Newcomers can now enter at lower prices

This, in turn, should bring confidence back to Bitcoin and create the opportunity for people, who previously thought they were too late to the party, to step in and start buying at fire-sale prices.

3. Future selloffs won’t be as extreme

The reason this is not only good but, in my opinion, great for Bitcoin is that by having Bitcoin held by a large number of small holders as opposed to a small number of large holders, means that it is less likely for a catastrophic sell-off to occur in the future. This will also enable the digital asset to build on its new support level.

The mining difficulty is still increasing whilst the price is falling and the halving is only 57 days away. This means that soon any Bitcoins entering the market will be doing so at a much higher rate than the current price as they will have a higher production cost.

It may not happen overnight but when it does, it’s likely to trigger one of the most impressive bull runs that we have ever witnessed. A lot of analysts do not expect these prices to last for long or go much lower.