The past couple of days have taken the world of crypto by surprise when major reductions in value occurred for almost every cryptocurrency. February was a strong month for crypto and promised to send prices to new highs for good. While everyone waited for bitcoin prices north of $10,000 to be a thing of the past, however, it only took two days for the world’s number one cryptocurrency to lose nearly 25% of all the gains accrued over the previous six weeks. As is usually the case, most other crypto coins followed bitcoin down the slope.
So, why the major reduction in bitcoin value? In an unprecedented turn of events, we must now bear witness to the results of a cryptocurrency that has become so widely adopted on the world stage that it is now subject to the ebbs and flows of other asset markets. Bitcoin’s sudden loss in value is only a very a small piece of the puzzle, in fact. Oil prices are down, stocks and bond yields have been affected, and nearly every cryptocurrency has been dragged into the mud by some specific world events and investor response to those events.
It is certainly no secret that the coronavirus epidemic has taken the world by storm, and with it the financial markets, cryptocurrencies included. Travel bans are in effect, businesses are closing down, and people are jumping ship from a large number of investment tools in order to save their assets from sinking too far below acceptable levels. The coronavirus is also responsible for the rate cuts made by the Federal Reserve – another significant problem for financial stability and investor confidence. It doesn’t stop there, though. Right in the middle of a possible incoming pandemic and rising fears on Wall Street, we have other troubles brewing as well. In comes an oil war which threatens stability even further.
On Friday, Russia decided to follow its own path where oil production is concerned. Instead of reducing oil production along with several other key States (OPEC) in an answer to the slowing demand for oil due to the coronavirus, Russia has decided to continue with their status quo. In response, one of the world’s largest oil exporters, Saudi Arabia, decided to take a competitive stance by reducing oil prices almost overnight. The result looks to be an oil war unlike anything we have seen in a long time with futures related to crude oil down to at least 30%. This is and will affect the stock market drastically, and now Bitcoin, Ethereum, and other coins as well.
Last Friday#Russia told #SaudiArabia that it was unwilling to cut oil production further. The Kremlin had decided that propping up prices as the coronavirus ravaged energy demand would be a gift to the #US #shale industry.— Charlotte Gracias (@Charlotte3003G) March 9, 2020
The #oilprice war has begunhttps://t.co/xbKEtMj7V1
There is also another factor to consider when trying to pinpoint the cause of the recent cryptocurrency market’s decline and it’s effects will be temporary. Last year, the group behind the PlusToken scam were taken to court and many of them went to jail. Why should this matter, their fictitious crypto wallet scammed investors out of an enormous amount of money – in the $2 billion range. While they were caught and tried, however, more than 180,000 Bitcoins, almost 6,500,000 Ethereum coins, among others were never recovered. Over the weekend, some 13,000 Bitcoins were released onto the markets which undoubtedly had a negative effect on charts. That effect, among other factors, triggered investor fear.
At the moment, the cryptocurrency outlook for the next couple of days is looking bleak, to say the least. While there are plenty of experts reminding investors to hold on to their hats and stay in the game, fear levels are sky high and investors are fleeing at alarming rates. With the coronavirus, Fed rate cuts, and now the impending oil war shaking things up, the cryptocurrency market is now down more than 10% over the past two days, and today’s prices represent a 25% drop in value from February’s high north of $10,000. The total cryptocurrency losses have reached approximately $25 billion.
One thing to note is that cryptocurrencies are quite volatile, and these kinds of movements are relatively normal which is something that can be seen from looking at historic data. The fascinating thing worth taking notice of is how closely tied to traditional assets these latest movements have been. Not only does it show that Bitcoin and other cryptos are now rubbing shoulders with the big leagues, but it also means some of the same indicators that allow us to see incoming changes to traditional markets may begin to become more applicable to crypto than they have been in the past.
On a positive note, crypto is still not a fiat currency, precious metal, stock, or bond. And, it is certainly not oil. It operates under different pretenses and is highly likely to come out of all this relatively unscathed. In fact, many are now saying that now might just be the time to buy into crypto since the prices are so low. One of those voices in Jehan Chu who is one of the co-founders of Kenetic Capital, and he said that this is the time “for those with long-term investment horizons” and that “we can expect this kind of volatility” from an asset like bitcoin.
“For those who have long term investment horizons, bitcoin is absolutely a buy during these dips,” Jehan Chu, co-founder of Kenetic Capital, an investor in blockchain start-ups told CNBC.— henry crow (@EnrikkCuervo) March 9, 2020
He goes on to say that Bitcoin and other cryptos are likely to be on the rise very soon. With low prices currently across the board, and huge sell-off in recent days, and an incoming halving event, Bitcoin may just be too attractive to resist. If that ends up being the case, we would the bulls return the crypto markets to levels similar to what we saw during February.
The chances of crypto failing completely are out of the question at this point since most of the world has bet on its success – governments, major corporations, and contractors, alike – and are willing to prop it all up should trouble come.
For now, we wait and watch. Due to the troublesome financial markets and outlook for many other asset types such as stocks and bonds, commodities, and precious metals, we need to see how investors will respond to these new challenges. While crypto is not, in fact, tied directly to these markets, the same apprehension exists among many an investor. At the moment, it looks as if it will take a while for cryptocurrencies to gain momentum again, but before Bitcoin’s halving event there will probably be a sharp rise as bulls try to maximize on opportunity. If we are looking even further into the future, cryptocurrencies appear to be in a very good place.
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