It is always amazing how any deflation in Bitcoin prices can bring out the skeptics in the crowd. After Bitcoin’s latest “Flash Crash”, analysts, who were afraid to show their faces for months on end, are now flooding the streets with dire predictions of another “Crypto Winter” or that government officials have finally signaled the death knell for all cryptocurrencies. Such is the paranoia that grips Crypto-Land in its clutches at the moment. In times like these, Bitcoin has typically rallied, but the folks at Forbes think not.
Are analysts at Forbes just another opportunistic crew that jumped upon Bitcoin on its way down to drive a few more clicks on its website? Before you think of your answer, take into account that these analysts warned that a “Perfect Storm” was building for the world’s favorite digital asset and market leader – wait for it – a few days before the actual flash crash took place.
Hindsight is great when you have a rearview mirror handy, but these analysts were looking forward and back, and they did not like what they were seeing. The question then becomes, if they saw red alerts flashing, are we now in the midst of this “storm”, is it only building for a bigger crescendo to come, or is it further down the road? Answers for now might be just speculation, but if we look at the clues that have appeared over the past few weeks, we might begin to believe that the it is now in full force. How long will it last or could it get worse? Those questions are the more important ones.
The first clue came from “Crypto Dad”, the affectionate term given to Christopher Giancarlo, the recently departed chairman of the CFTC. He recently told Coindesk in an interview:
One of the great untold stories of the past few years is that the CFTC, the Treasury, the SEC, and the National Economic Council director at the time, Gary Cohn, believed that the launch of Bitcoin futures would have the impact of popping the Bitcoin bubble. And it did.
As he noted further, the Bitcoin market at the time was comprised primarily of “believers”, and it was not easy to short BTC. The introduction of derivatives was a necessity, since active shorting does allow a market to discover fair value, instead of relying on only those that bought into the hype. If you ever wondered why the CBoE and CME had such an easy time getting approvals for their BTC futures contract offerings, now you know that regulators wanted to deflate what they saw as the first major asset bubble to form after the financial crisis of 2008. The result was “Crypto Winter”.
Back to the “Perfect Storm” scenario, and what did analysts at Forbes see that was so disconcerting? Volatility had declined for weeks, and the Bitcoin trend since early July had been a gradual decline, as well. The disturbing trend, however, was volume, and not just those total figures that include the so-called 95% of “fake volume”. Forbes noted that the “real” volume data from the top ten exchanges had dropped below $200 million a day, down a full 20-fold from just months before.
Mati Greenspan, eToro’s senior market analyst, had also taken notice and tweeted:
Across all crypto venues, volumes are dismal. This is a giant lull in crypto volumes across the board. Let’s not forget that bitcoin is one of the best performing assets this year. After all this action a period of stabilization is more than welcome. Bitcoin is not dead. It’s just resting.
Trading volumes on key exchanges is one measure, but another important one is the transactional volume happening on the Bitcoin blockchain. While transaction counts have remained steady, blockchain daily dollar volumes have fallen below $800 million, the lowest figure since May. The latter part of Greenspan’s comment could explain this drop, since a lull after gangbusters should be the rule of the day.
Forbes contends, however, that declining trading volumes are bad news for Bitcoin exchanges, which derive their very livelihoods from this statistic. Combined with declining values for Bitcoin, Forbes predicted a “Perfect Storm” as imminent. Mark Zuckerberg’s appearance before Congress was public news, and any professional shorting crew worth its salt would have been salivating at the prospect of this week. The clues all point to a major shorting exercise. Derivative volume did spike up recently.