Can Cryptocurrency Markets See Another Big Drop?

It’s no secret that March 12, 2020 marked one of the darkest days in cryptocurrency history. This was the day that Bitcoin (BTC) witnessed one of the biggest single-day price drops in its existence in a decade, plummeting from $ 8,000 to a staggering low of $ 3,600, albeit briefly, only for a matter of minutes.

To put things in perspective, in a span of just 24 hours, more than $ 1 billion worth of BTC long positions were liquidated, causing one of the steepest declines in value witnessed by the digital market in its short history. Another way of looking at the crash is that during the mentioned time period, BTC lost almost 50% of its value, a statistic that is quite surprising, to say the least.

It is also worth noting the fact that in the course of the same week, Bitcoin and many other cryptocurrencies showed extremely high correlation with the United States stock market, which at the time was seen as a possibility due to the general decline in investor appetite for high-risk assets, especially when the COVID-19 pandemic was starting to raise its head.

The sharp correction in the US stock market – which saw the Dow Jones Industrial Average drop 2,300 points – was its worst decline in more than 30 years. This correction, coupled with a lack of demand for BTC, caused the price of the cryptocurrency to drop first to the $ 5,000 mark and then to the $ 3,600 mark.

Is another crash looming?

To explore the possibility that the cryptocurrency sector could receive another massive drop sometime this month, Cointelegraph reached out to CryptoYoda, an independent analyst and cryptocurrency expert. In your opinion, the triangular combination of finite supply, increasing demand and highly leveraged trade is a recipe for sudden dips and turbulent volatility, adding:

“We will continue to see a lot of temporary dips along the way as markets have a way of regulating and balancing the intense emotions of investors and traders, both retail and institutional. What happens is that we have never witnessed an experiment on such a scale. so tremendous that it involves limited supply combined with insane demand and explosive tools like leverage, which will make this journey quite bumpy. “

Hunter Merghart, head of US operations at crypto exchange Bitstamp, noted that while the structure of the crypto market has evolved dramatically since last March, the possibility of another crash cannot be completely ruled out. Having said that, stated that the cryptocurrency sector is now replete with regulated spot trading avenues, derivatives platforms that guarantee a high level of liquidity.

Furthermore, Merghart believes that, compared to previous years, There are now many more active participants within the global crypto landscape that can help ease any imbalance should volatility suddenly spike overnight for some unforeseen reason.

Anshul Dhir, co-founder and COO of EasyFi Network – a two-tier DeFi lending protocol for digital assets – told Cointelegraph that currently, an immense amount of capital has been locked into DeFi, and the global market capitalization of the cryptocurrency industry is over $ 1.5 trillion. However, out of this figure, Dhir noted that most positions are over-leveraged up to 50 times.

Things are different this time, really different

While there are some fears of a possible crypto crash, overall sentiment surrounding the crypto space appears to be much calmer this time. For example, Chad Steinglass, chief operating officer of the US-based cryptocurrency trading platform CrossTower, believes that although the first anniversary of the much dreaded “fund” is approaching, there is nothing to worry about such a scenario repeating itself again:

“While March 2020 was a dark time for cryptocurrencies, as it was for all global markets for all assets, it is what came right after that has come to define digital assets. The rapid and massive intervention of digital assets. Fed to support liquidity in financial markets was exactly the activity that Nakomoto saw as the writing on the wall after the Great Financial Crisis of 2008 that prompted him to create Bitcoin in the first place. “

Furthermore, he opined that the Federal Reserve’s response to COVID-19 was confirmation of the original thesis behind Bitcoin, and kicked off the bull run that has been ongoing for the past 11 months. Steinglass said the Federal Reserve has shown no signs of tightening its monetary policy, and even Congress, despite the partisan lockdown, has shown that it will continue to inject stimulus into the economy until the coronavirus recession is fully in the rearview mirror. .

Furthermore, with the steady stream of institutional adoption – with a major new traditional asset player announcing its support for digital assets seemingly every two weeks – it appears that there will be no serious correction for any reason other than some surprise prohibitive regulation coming. Treasury or the Securities Commission, which, at this point, seems highly unlikely.

The only caveat Steinglass makes regarding its bullish stance is the possibility of some profit-taking from US-based investors who bought BTC at the lowest time and waited to sell until that the calendar is moved for tax purposes. “However, I expect the volume of BTC that these sellers will be looking to sell will be relatively small in the grand scheme of things.”he added.

Daniele Bernardi, founder of PHI Token and Diaman Group, believes that the fall in the price of Bitcoin last year and the collapse of financial markets around the world were totally related to the start of the pandemic. In this regard, he told Cointelegraph that such an event is unlikely to repeat itself:

“Any asset, even gold and commodities, suffered a big drop due to the uncertainty in the development and spread of the pandemic. So, in my opinion, the movement of Bitcoin was more related to the irrational and emotional selling of everything on the part of investors, an effect well known as ‘systematic risk’, than with Bitcoin itself. “

Is it safe to keep it?

Although the events of March 12 are etched in everyone’s memory by now, most technical indicators seem to suggest that the possibility of this scenario repeating itself seems unlikely.

In this sense, it is also worth mentioning that many of the fears about the coronavirus that were unleashed last year around this time -and that seem to be the main drivers of the collapse- they have already largely dissipated, especially as vaccination has begun to spread on a global scale.

If there is one thing that the crypto market has taught its participants over the years, it is that anything is possible when it comes to this niche. Therefore, Any prediction of future price action is nothing more than a very well-educated guess and that any unforeseen global event can reorganize the Bitcoin platform to form a completely different narrative.

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