Bitwala’s Head of Trading, Dennis takes a deeper dive into the current climate.
There's certainly no cutting coronas around this one
The narrative surrounding bitcoin has always been that of a safe haven, in other words, a place where you can put your Euros to protect it from market turbulence and economic shocks. The last few days have placed a dent into this narrative. We’ll try to find out just how deep that dent is and if it will leave us with more than just a slight bump in the road.
The big picture
As we all know, China is the extended workbench of most of the world’s industries. Clothes? Laptops? Phones? Vacuum machines? Airbags? Breathing masks and vaccines? Children’s toys? All from China, exported to all around the world. In exchange, China imports cars, iron and oil. You notice how the latter may be used to produce some of the items that are then in turn shipped out? That’s what constitutes one of the strongest economic cycles of the world.
Now when such an economic relationship comes to a grinding halt, that effect ripples through. As a whole population is quarantined, less is produced. This means there is less demand for cars and even less for oil and raw materials.
This leads to fewer exports and in turn to fewer products available on the markets. Companies have to adjust their sales figures, raise prices and increase or manage stock more carefully. People tend to travel less as there is an increased number of destinations that are deemed “unsafe” as well as the fear to be infected while being on board a steel tube with forcefully circulated exhales of hundreds of passengers.
Overall, the dampening effect on the world’s economy as a whole should be obvious. However, for now, the whole system has all but sneezed, although Italy just yesterday announced it would stay in bed for a while. Italy is Europe’s third strongest economy!
Wheels, too well greased (oiled)
But just one day prior, something else happened that helped set the stage for Monday’s crash. The OPEC had, although there were clear and ample signs of a reduced demand for fossil fuels, decided not to reduce their production output of mineral oil.
The OPEC considers itself the guardian of both the oil price and oil production.
However, not all oil producers are playing game. While the OPEC wanted to reduce the output of oils to keep prices stable, Russia and Saudi Arabia were in heavy disagreement on if and how to curb production. Both in the end decided to increase production and decrease oil prices. Meanwhile the IEA (International Energy Agency) had already predicted a decline in demand for fossil fuels due to increased environmental awareness and the aforementioned effects of the Coronavirus.
Add to the picture that both Russia and Saudi Arabia have an alleged motive to put heavy pressure onto Iran, whose only source of income is the sale of their oil production while facing drastic international embargo measures, you can see a perfect storm on the horizon. Monday was the breaking of the first wave on the shores of western economies.
Tsunami (literally: “wave in the harbor”)
The storm, while wreaking havoc on oil and equity prices, has led to a Tsunami in what was deemed to be a harbor for cash in troubled times. While most of the crypto community holds fast to the belief that bitcoin will save them from “IRL” turmoil, institutional investors have been piling in over the last years, attracted by high volatility in unregulated markets. The first inkling of this development can be found in the fact that the last ATH coincides with the day the BTC futures market opened up in the US. Short Futures, drop the market, recoup the futures, rinse, repeat.
The “real” volume on crypto markets is low enough that a group of wealthy traders could well be seen to pool resources (only a couple of 100 million) and make this their playground. Their disconnect from the sociophilisophical aspect of what crypto is is evident. Thus, they treat crypto just as any other high-risk asset class instead of a place of refuge. They calculate in USD, not in Satoshis. So obviously, they chose to offload their at-risk holdings in this moment of crisis - maybe to go to cash, probably also to scoop up some other potentially underpriced assets.
A look around the major indices revealed a number of companies that might have unduly been hit byrisk-off shrapnels that are worth being sniped up. Companies that do well without (much) oil, like Tesla.
For years, the crypto community has argued that the first ETF listed and the next big player to embrace crypto would bring mass adoption and would carry us towards the moonlambo if we just hodlon tight. The recent episode shows that this might not be the case in the short term.
PlusToken sneezes, market catches the flu
While one may be prompted to assign the whole disaster to Corona and the “flight to cash”, some commentators have also picked up on a movement of PlusToken bitcoins that started moving on March 7th and may have been at least partly sold off on March 8th, increasing pressure on the markets. According to some sources (CoinSwitch.co CEO being cited without a quote) the scammers may have offloaded 13.000 BTC after a thorough rinse through mixers. While we do not want to mix up cause and effect, this selling pressure may have triggered the aforementioned players to start squaring their positions, triggering further decline. So while we in the short term may be affected negatively, we can take a modicum of join in the fact that the scammers were not able to sell off at a peak price point.
We also encourage everyone to carefully assess their risk appetite and if after careful consideration deem yourself to be strong-minded and steadfast, there’s always that old crypto mantra: Buy the dip!
BTC/USD daily chart
As markets took a beating yesterday, we are for now out of usual TA waters. Zooming out all the way to 12 months ago, we can see a support that could serve as a mental barrier as it coincides with one of the weak support lines from September/October of 2019. Equally undefining but nonetheless present is a small range of heavy price activity that served as starting point of the 2019 rally and as recuperation area end of that same year. What a ride it’s been!
ETH/USD daily chart
ETH suffered from some liquidation of DeFi-funds locked up in several lending contracts. The short breach of the $200 mark that coincides with the 38% Fib support should ideally be recovered soon to not risk further sell-off. Bad news should be priced in (Corona and PlusToken), so it’s not unreasonable to hope for a bounce-back in the coming days.