Crypto Speculative Bubble Party Ends, Some Take 50% Drawdown In 24 Hours: 3 Things To Know
The price of Bitcoin and other cryptocurrencies crashed in the last 24 hours, with some shares falling 50 percent from all-time highs, prompting calls that the massive selloff means the bubble has burst.
Bitcoin traded as low as $31,926 on May 19, wiping out more than $500 billion in value after reaching an all-time high of close to $65,000 on April 15.
In a volatile crypto trading session, Bitcoin bounced back up to $40,000 as of this writing.
Here are three things to know about the crypto speculative bubble party ending.
While bitcoin shed 15 percent in the past 24 hours, other top 10 coins were down more, according to data source Messari. Ethereum was down 31.8 percent; Binance token BNB was down 36.89 percent; Ripple XRP was down 35.61 percent; Cardano (ADA) was down 38.25 percent and Dogecoin was down 42.12 percent.
The No. 1 cryptocurrency Bitcoin has dropped by 34 percent so far in May, the most for a single month since November 2018.
Amid the market-wide risk aversion, cryptocurrency exchanges offering crypto futures liquidated $8 billion worth of positions, according to data source bybt.com. Bitcoin futures account for almost half of the total market-wide liquidations, Coindesk reported.
Crypto exchanges reported disruptions as cryptocurrency prices fell, according to Bloomberg. Binance, the world’s biggest cryptocurrency exchange, temporarily disabled Ethereum withdrawals citing network congestion. Coinbase said it had “intermittent downtime.”
“This is the end of the Bitcoin four-year cycle and everything follows from that,” wrote Clem Chambers, CEO of crypto information website ADVFN.com and author of Amazon No.1 Bestseller “101 Ways to Pick Stock Market Winners and Trading Cryptocurrencies: A Beginner’s Guide.”
Chambers predicted in a Seeking Alpha column that the next crypto winter will be as long as the last one of 2018 and when it recovers, the crypto boom will be twice as high as this one.
“If we see the low $30,000s soon, it will then be a question of will we see $10,000-$20,000. To me, that’s possible because when the ‘I bought at the top’ brigade stampedes for the exit, it will get extremely spicy,” Chambers wrote.
Moguldom CEO Jamarlin Martin wrote about risk factors and Bitcoin in the latest episode of the GHOGH Podcast.
Bitcoin could be a promising asset with strong fundamentals and a really good investment, Martin said. However, if there’s a lot of speculative, fast money coming in from people who want to make a lot of money in a short period, then the market structure could become dominated by folks who don’t really have conviction. “They’re just in for a quick buck. It’s a lot of hot money and they’re coming in to make a killing fast,” Martin said.
The speculative money investors don’t really look at Bitcoin with a view to holding it “like a Warren Buffet or a long-term investor, ‘because I believe in it and I’m going to hold her for 20 or 10 years,'” Martin said. “That’s holding Bitcoin with strong hands, with a lot of conviction.”
China this week banned financial institutions and payment companies from providing services related to cryptocurrency transactions and warned investors against speculative crypto trading. This isn’t China’s first attempt to clamp down on the burgeoning digital trading market.
“Recently, crypto currency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people’s property and disrupting the normal economic and financial order,” three Chinese industry bodies said in a joint statement on Tuesday, Reuters reported.
Five of the six mining pools that perform more than 80 percent of Bitcoin mining are located in China or managed by Chinese organizations, and this could threaten the world’s largest cryptocurrency, according to a new report by Princeton University researchers. The report, titled “The Looming Threat of China: An Analysis of Chinese Influence on Bitcoin,” details out how China’s increasing influence over Bitcoin may be putting the network at severe risk.
Martin warned of other regulatory risks facing cryptocurrencies in Episode 74 of the GHOGH Podcast.
The Securities and Exchange Commission in December 2020 sued Ripple Labs, the originators of the crypto XRP, alleging that they offered and sold more than $1.38 billion of digital asset XRP without registering as a security or getting an exemption. Ripple denied that XRP is a security or that it violated securities laws. At the heart of this case is whether or not XRP is an “investment contract” and therefore a security.
“Ripple is doing all this funny stuff,” Martin said. “They’re going into the market, manipulating their own XRP coin, they’re signing deals. And they’re not disclosing to the XRP folks that they are buying marketing partnerships. So they’ll announce a deal with MoneyGram, but they may have sent MoneyGram $50 million or $75 million … to pay the partner to try their platform. When the bubbleheads see the press release, they’re going to buy. If they’re buying, the market cap of XRP could go up $500 million.
“There’s a lot of this pump activity or nefarious activity, like with any bubble, where you have so much money in play, you have something new, you have something hot,” Martin said. “There’s a lot of nefarious actors, a lot of greedy actors that bring this fraud element to it or misrepresentations where they’re trying to get the people hooked into the new thing.”
Puru Saxena, a Hong Kong investment portfolio manager and popular investment commentator, tweeted on May 16 that signs point to a $15,500 support level for the No. 1 cryptocurrency and that the current “bubble burst appears to be in progress.”
“During prior busts, the 200-week EMA provided support (black arrows),” Saxena said in reference to a graph showing the exponential moving average — a moving average that relies on historical data to produce buy and sell signals. Traders often use several different EMA lengths, such as 10-day, 50-day, and 200-day moving averages. “Today, that is ~$15,500,” Saxena tweeted.
“If the speculative casino-gambling type of character becomes a dominant, supportive factor for Bitcoin, that’s a risk factor,” Martin said in Episode 74 of the GHOGH Podcast. “Because if the market starts to turn, this hot money is going to be rushing for the exit, they’re going to try to all be getting out the door at the same time. So this could set up a collapse of Bitcoin of 50 percent or more, and essentially Bitcoin being cut in half or something more severe. And it stays there for a couple of years.
“If you’re holding Bitcoin for the long term, you have a lot of conviction. That’s fine. But if this hot, speculative money, casino-quick-buck money is really, really deep in the market structure of Bitcoin, it’s a risk to that asset.”
Historically, the pattern has played out in other market crashes. There was a lot of speculative activity with tech stocks in 2000 before the dot.com crash. There was also a lot of speculative activity with real estate in the sub-prime mortgage crisis.
“Bitcoin is not an exception,” Martin said. “This market structure that’s underneath Bitcoin — it’s creating a big risk for a lot of people getting hurt, trying to run out that door at the same time. Once they see this thing is falling 30, 40, 50 percent, there’s speculative market structure risk.”
There is an upside to the bust, Chambers wrote, while acknowledging that his words might anger many readers. “We will get two-to-three years of opportunity to buy BTC etc. very cheaply and the next halvening should see BTC up to $100,000. This is where my focus lies. I will acquire for the next boom/bubble.”
