The red candlesticks thereafter for BTC tell a story of exaggerated declines, representing a loss of nearly two–thirds of its value before the market snapped back in dramatic fashion. There had been much discussion over the past year as to how any cryptocurrency might react to a “black swan” event or a radical correction in equity market valuations. It now appears that we have a real-time demonstration of at least one possible outcome, but this wildly gyrating pattern of price behavior was not unexpected.
Equities have been appreciating for some time, and it was to be expected that, if a severe downturn were to occur, investors using margin to expand their gain horizons might suddenly be confronted with the need for immediate cash on hand. The result of such margin calls in the past has typically forced those same investors to liquidate the riskier elements in their portfolios. Institutions and short-term oriented traders would have naturally fallen into this category and been spurred to sell BTC due to COVID-19.
Richard Rosenblum, co-head of trading at GSR Markets, offered this explanation to CoinDesk staff:
These non-crypto dedicated participants squared off their long positions to raise the cash needed to fund margin calls. Following the liquidations, the market is primarily made up of crypto-native firms and long investors. Not surprisingly, bitcoin is acting more bullish.
What can we expect to happen next with Bitcoin valuations?
Bitcoin is presently closing in on the $8,000 level, where support had existed prior to its major decline. Current momentum may be enough over the next few days to push it through what would now be regarded as resistance. As dramatic as the recent upswing has been, there remain concerns. Volumes have subsided to a degree, reflecting a lack of support for a major push northwards, and the Relative Strength Index (RSI) has been signaling an overbought condition.
Michaël van de Poppe, an analyst with Cointelegraph Markets, is in the negative camp:
If we get another rally towards $7,400-7,600 we’ll be seeing bearish divergences, implying a top. The whole volume on this grind up just doesn’t add up. Looks more likely to see $5,000 as a test for support and accumulation period than that we’re going to move further towards $9,000-9,500.
There are also optimists that see brighter days ahead. Based on forecasts from ten industry leaders, a recent report from Finder.com foresees $15,000 as a possible outcome later this year. The report actually suggests a higher value is possible “if the world works together to push past this virus in coming months”, but predicting how the coronavirus pandemic will play out in the months ahead is anyone’s guess.
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