Remember this year in crashes?
There is an abundance of articles detailing the biggest-most-worst-ever crashes Bitcoin had to suffer since being first traded in a widely accessible market. From $30 down to $2, from $1,000 to $100, from $5,000 to $2,000... these mark some of the most extensive swings that traders could take advantage of anywhere in the investment world. We will look at the current past, which has its very own dramas, sell-offs and FOMO-pumps.
Figure A - Weekly view of BTC/USD
Before we go into much detail, the upper, very rightward-down-pointed blue line in Fig.X shows that bitcoin is, in fact, in a downward trend. The next weeks will become very interesting because you will also notice the grey-greenish area in the 6,100-5,600 range, that has repeatedly been able to stop the downward trend. The point where this range meets the downward pointing blue line will be decisive. If we stay above the horizontal line, we might go to the moon… if not, the lambo might go to the pawn shop instead.
There are different types of crashes: Small dips (just someone casually selling 200 bitcoins on a market with not much volume); flash-crashes (on heavily centralized electronically traded markets, a feedback loop that tells algorithms to sell when a certain trigger is met, which leads to subsequent triggering of other algorithms, thus creating a feedback loop); “fat finger” crashes (creating small dips or triggering flash-crashes); “salami” crashes (slice by slice); and, of course, those that get their own name like the “MtGox crash” of 2014 which resonates until today.
We will begin at the end of 2017 because of its notorious all-time high. We have seen a multitude of crashes for different reasons ever since. Let’s examine those because the beginning of these series of crashes coincides with the highly anticipated release of Bitcoin Futures on the CME (Chicago Mercantile Exchange). The advent of these Futures was hailed by many as the day on which institutions were finally able to invest in bitcoin, making an influx of considerable amounts of money almost inevitable. These people were almost, but not quite, entirely wrong (whisper from offscreen left: “Honi soit qui mal y pense…”)
The money flowing into these Futures Contracts was instead used to short the Futures contract (in layman's’ terms, “selling the future of bitcoin”), i.e. investors sold bitcoin they did not have, something the crypto world was not yet widely accustomed to. Although there are Futures on several crypto exchanges, and some exchanges let you lend your crypto to others to sell-and-buy-back, the attention these “officially approved” Futures brought to the market was unprecedented. As soon as people noticed that the Future was sold, not being bought, the panic started setting in and bitcoin lost about 46% of its value in about one week.
From then on, a pattern of breathe-and-dump emerged, where periods of recover were followed with sell-off phases of varying length. If we zoom in on the daily view (Fig Y), we can see periods of declining prices (red candles), interspersed with a view days of “letting the market breathe” (green candles) before the dump resumes.
Aside from the semi-institutional actors, another notable person in this drama is the MtGox Trustee Kobayashi, who is in charge of the bankruptcy proceedings and holds all the coins able to be recovered from the now-defunct exchange. If you want to follow his influence, we invite you to peruse this twitter thread.
Figure B - Daily view of BTC/USD
January to February 2018
We have separated the January and February crashes in Fig Y to show that the market is always allowed to suffer from a day or two of crash-end delusion. As one may see on January 17th, having seemingly shrugged off the December sell-off, the price had almost regained a level close to the all-time-high when sellers started dumping again. Reason? An alleged ban of all crypto trading in Korea.
For almost two weeks, there was a constant change of a few days in which massive sells occurred followed by a handful of days with less downward pressure. As soon as the market assumed it was all over, another dump began. One can observe that the dumps become stronger the longer the downtrend lasted. This leads us to assume that people had caught on and were trying to play the same game big sellers did. February 6th, after only two weeks, the price decreased ~46% standing at $9,242.
In the short four following days, the price made back about 40% to $13,052 (it’s important to realize that X-40%+40% is not 100% but only 84% of X), a sign of the resiliency of the markets and the continued interest of investors and speculators. Or was it? Because after that, the next wave of selling began, driving the price down another 50% to $5,920 for a compound loss of 65% over just 31 days. You will again notice that the market was not dumped all at once, but allowed to recuperate before the next sell, a market where only the bold profited.
March to April
From the February lows of about $6,000, Bitcoin did what it was most notorious for: Running the bull. Prices almost doubled in the (exactly) four weeks from Feb 6th to March 5th, when it seems it was due for another dump (there are those who since then fear the 6th of the month more than Friday the 13th). And again, sometimes dumps come in pairs. This time, they were rationalized by the regulation of two Japanese exchanges, SEC statements regarding regulation of the complete crypto ecosystem and, of course, the infamous MtGox trustee, who only now “officially” revealed that he had recently sold off $400mln worth of BTC.
Movement in these coins is closely monitored since there are around 140,000 BTC and BCH still in the custodian’s wallet as of this time, any movement of which may indicate the desire to sell. Allegedly, the Trustee has, however, sold OTC at an undisclosed price. In addition, Google announced that they would forbid all crypto related advertisements shortly after Facebook had made a similar announcement. Of course, this didn’t resonate well with those counting on ever-increasing buy pressure from people who wanted to buy into ICOs.
May and June
“Sell in May, go Away” - By now we are humming “6th of da month” because that’s the day of the last local high (heh) that came close to reaching $10,000 - followed by a “salami” crash that lasted all of May to the end of June. The beginning of this crash was not spurred by any news of impending doom - maybe that’s what made so inconspicuously slow to pick up momentum. One could argue that the overarching technical analysis looked bearish (that’s fancy trader talk for “looks like it might soon drop”): The price had recovered about ⅔ of the distance from between the March high and the April low, which is always a sign for those brave enough to buy the dip that it is time to take some profits.
Overall trading volume was low (June marking the fourth consecutive month with decreasing volume), so sellers had to take more breaks and stagger their selling activity if they didn’t want to induce another big sell-off. Of course, Bitcoin couldn’t go two weeks with some news item putting pressure on the price. The biggest singular one in this timeframe was release in June 10th ($7,500 to $6,500), when the U.S. Commodity Futures Trading Commission (CFTC) subpoena’d trade histories from Bitstamp, Coinbase, itBit and Kraken, suspecting market manipulation (non! si! oh!) related to the (wait for it…) CME Futures contracts. So, end of June rolls around and Bitcoin is close to breaking the support barrier range.
July until mid-August
July ended with a hack that wasn’t accompanied by the else-unavoidable drop - the industry’s parvenu exchange Binance had been compromised. The market took into account the following factors: It was “only” the API that had been compromised. It was “only” $45mln that were potentially affected. Binance immediately reacted and was able to reverse some of the faulty/fraudulent trades, and reimburse customers (not an easy feat, except when you’re x-times more profitable than, say Deutsche Bank). Most of all, however, we can assume that hacks of exchanges just come as a quasi cost-of-business and are shrugged off by the community as something that just happens (unless it happens to them, of course). With the month’s bad news out of the way, the way to recovery was prepared. Bitcoin again did its old “retrace ⅔ from the previous high” routine only to bump its head on the downtrend line and reversing direction, following no law but that of the market.
End of August to mid-September
Pre-empting the dreaded 6th of September but heeding the law-of-the-lines, the price started dropping a day early. People might have been holding out for an alleged SEC decision regarding another Bitcoin ETF (Bitwise this time), but might have been turned off by a tweet of the Bitwise CEO, stating that there wasn’t even a decision timeline set yet. Others simply traded the overarching chart image (please refer above) and saw the price going as low as $5500 until one of the downward trends merges with the ~$6000 support range. This could be as early as October or as late as February.
Figure C - Daily view of BTC/USD
Mid-September to end of October
At the time of this writing this post, BTC/USD is trading at $6,451 USD on Coinbase. Price action has been moving sideways in a consolidation pattern over recent weeks establishing both record low volatility and volume for 2018. The cryptocurrency king has reached 53.8% market capitalization which puts its total evaluation right at ~$110 billion while the total cryptocurrency market cap hovers around 200 billion.
One of the few notable events within the past month is in regards to Tether, TrueUSD and several other dollar “pegged” cryptocurrencies wild fluctuation in value on and around the 15th of October. The “stablecoins” became not so stable as Tethers prices plummeted to $.85 on Bitfinex meanwhile TrueUSD soared to $1.24 on exchanges such as Binance. The speculation price drop of Tether created panic in the market as traders rapidly sold out of Tether into other Cryptocurrencies. At the same time, Bitcoins value shot up above $7,700 on Bitfinex, trading at a $1000 premium to other major exchanges.
BTC has made higher lows each time the bears have tried to push the price lower. Significant support occurring at $6100 to $6200 USD. In the past month, BTC has tested resistance levels at $6800 three times only to be pushed back down to the lower levels around $6400. As price action grinds sideways day after day and week after week, institutional investors and traders alike are anticipating a breakout to occur soon in one direction or the other.
Figure D - daily view of BTC/USD (Bitstamp)