Unsurprisingly, many traders were caught with tier pants down during this move, so to say, with crypto exchange BitMEX reporting that nearly $1 billion worth of Bitcoin positions (majority long positions) were liquidated in this massive capitulation lower.
This capitulation honestly feels like Bitcoin’s drop in December 2018; hundreds of millions were liquidated, people are calling for $1,000 once again, etc.
The thing is, there’s now a high risk of recession, something our favorite orange coin hasn’t been through.
— Nick Chong (@_Nick_Chong) March 12, 2020
This has left many wondering — what pushed the crypto market so far lower? And, more importantly, what comes next?
Why Did Crypto Crash?
Per a blog post written by Changpeng “CZ” Zhao, CEO of the world’s largest crypto exchange Binance, it had much to do with panic-selling and a rush to the door by investors across the world, who were seeking liquidity above all else:
“The proportion of each type of investor in the market is unknown to anyone. It changes over time too. Their relative strength or conviction to sell/buy is dynamic too. When the stock market crashes hard, more people will feel the cash crunch to a higher degree and, hence, a stronger conviction to sell crypto in the short term as well.”
Bitcoin To Soon Be On the Mend
Although the liquidity issues that caused Bitcoin and cryptocurrencies to trend lower according to CZ could persist, there are signs that the crypto asset will be on the mend for the foreseeable future. Namely, there are fundamental signs that show BTC is starting to deviate from financial markets, showing strength due to its characteristics and its relatively uncorrelated nature.
For instance, Su Zhu of Three Arrows Capital, remarked that Bitcoin could soon surmount its new all-time high. As to why he thinks such explosive growth can take place in such a short amount of time, Su looked to the fact that several emerging markets are “now pricing in significant risk of sovereign defaults.” Su Zhu added that with the U.S. dollar set on a course for inflation “it will be hard to turn back from,” which has been corroborated by trends in the bond market.
This is in theory the moment Bitcoiners have been waiting for
Several EM mkts are now pricing in significant risk of sovereign defaults
USD itself set on an inflationary course it will be hard to turn back from
If $BTC mkt holds these lvls, 50K relatively quickly is possible https://t.co/CSSXEuNGyd
— Su Zhu (@zhusu) March 18, 2020
All this gives the decentralized and disinflationary Bitcoin a chance to shine.
Furthermore, Hunter Horsley, CEO of Bitwise Asset Management, sees the following reasons why BTC and the rest of the crypto-asset market could soon outperform equities:
Bitcoin has started to decouple from traditional markets, proving that it may act as a safe haven in the ongoing crisis.
72% of Coinbase clients are buying BTC, per data from the company itself.
The Bitcoin block reward halving is 50 days away.
Billions of dollars will soon enter this market “when levered longs return.”
Central banks have printed trillions worth of dollars to stimulate the economy, setting the stage for inflation that may benefit cryptocurrency.
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Source: https://www.newsbtc.com/2020/03/21/what-sent-crypto-plunging-50-lower-top-ceo-weighs-in/