Bitcoin rally severely repulsed – Major drop coincides with Coinbase crash


Shades of Icarus flying too close to the Sun marked the last 24 hours of Bitcoin trading, as the most heavily traded crypto plummeted nearly $2,000, just after U.S. markets had closed. Bitcoin was peeking at $14,000, having climbed above $13,800, only to pull back to $13,485. Suddenly, the air went out of the lead balloon. The fall was severe, finally bouncing off $11,347 and now recovering at $11,840. The BTC “crash”, as it were, actually coincided with another “crash” in the crypto network, as Coinbase, the largest exchange in the U.S., suddenly experienced system problems and had to shut down temporarily. The chart below tells the story of the immediately repulsed effort:

Although a material recovery is depicted on the chart back above $13,000, for the remainder of the trading session, Bitcoin struggled, as the bears took charge, driving it slowly down to support at $11,800. Speculation began immediately to determine the true cause for such a dramatic return of volatility. Had BTC risen to far too quickly? Did the Coinbase shut down contribute? Was leveraged selling the cause? Was Chinese capital being withdrawn from its Bitcoin “safe haven”?

The initial consensus that has formed is that the decline was perhaps due to a combination of all of the above suggestions. Let’s start with the Coinbase issue. Analysts are not convinced that a system crash at Coinbase, which lasted less than one hour, could be the only reason that blunted Bitcoin’s ongoing rally. A closer inspection of the historical record for the evening’s trading has revealed that the sell off had already commenced a bit before Coinbase ran into problems.

Per other reports:

The news that Coinbase was not operational was confirmed by an announcement on the crypto exchange’s status website. Moreover, at 1:47 pm PDT Coinbase revealed that it was investigating an issue seemingly affecting its API and website. Moreover, Coinbase was comparatively quick with fixing the issue. The crypto exchange reported that it had “identified the problem” by 2:13 pm PDT. Furthermore, the site reported that the problem had been “solved” by 2:38 pm PDT.

The Coinbase status logs also documented a series of processing issues for the two days leading up to its halt of trading. “Downgraded performance” was noted. The thinking now is that the exchange was having difficulty dealing with the huge volume surge. Another fact: “When the market crash happened, BitMEX figures show that some USD 250 million worth of BTC trades took place in just five minutes after the price drop”.

In other words, a host of influences were exacerbating the Bitcoin fall from “the heat of the Sun”, so to speak. Brian Kelly, CEO and founder of BKCM cited leverage, as an issue. As prices dropped, the unwinding of leveraged positions would create a flood of sell orders. Michael Novogratz, CEO of Galaxy Digital Holdings, pegs capital flight, as well: “A huge amount of the volumes of what’s going on in bitcoin and other currencies is coming out of Asia.”

Genesis Global Trding CEO Michael Moro remarked:

Even the most optimistic crypto bulls would tell you that a 50% move in a single week is too much too fast. Of course Bitcoin has a history of doing this (both upward and downward), but it’s hard to call the magnitude of the move healthy.

At times like these, the voice of reason is typically provided by Mati Greenspan, Senior Market Analyst at the eToro trading platform:

In fact, it was not Coinbase that caused the crash but rather the opposite. The running theory is that its website buckled under the weight of traffic caused by the sudden price drop. Trading app Robinhood also reportedly halted bitcoin trading around the same time.

Greenspan also noted that the Bitfinex exchange was down for scheduled maintenance, another contributing factor:

The platform handles a lot of orders so no doubt the market was missing the liquidity. It seems the crypto market got a bit too hot yesterday and is now cooling down. What an incredible market where the price can crash about 15% in less than an hour and bring us back to the highs of the previous trading day.

As for where we go from here, the $10,000 level of support has yet to be tested. Novogratz suspects that Bitcoin will now range for a period between $10,000 and $14,000. As for Greenspan, his take is:

If we do continue up from here, it would be pretty crazy and certainly would be a testament to the fact that we might actually be in for a much larger bull run.

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