Bitcoin’s cliff dive: we’ve seen worse

Bitcoin is down 45% from its November peak, but there have been far worse pullbacks in the past. Far worse.
If even a small fraction of panicked capital finds its way into bitcoin, there will be a monumental decoupling of cryptos from stocks and bonds. Image: Moe Zoyari/Bloomberg

Newcomers to bitcoin (BTC) were dished up their first real taste of what it’s like to live through a crypto cliff dive.

BTC is down 45% from its November 2021 peak, and 24% since the start of the year.

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But as the chart further down shows, we’ve been here before. After peaking above R300 000 in December 2017, BTC dropped 84% in the subsequent year.

There were two other pullbacks of 80% or more – in 2013 and 2016.

The S&P 500 index is down 8% from its all-time high at the start of the year.

Cryptocurrencies are showing signs of stabilising after a period of skittish trade, triggered by blunt signals from the US Federal Reserve that the days of easy money may be over – for now.

Four or more interest rates hikes are likely in 2022, along with a freeze on asset purchases and a reduced Federal Reserve balance sheet. Geopolitical tensions in Ukraine and supply chain disruptions in the US have added to investor worries.

So far, cryptos have taken the deepest gashes, with price drops of 45% or more, followed by tech stocks (the Nasdaq is down 14% from its November 2021 peak).

Mark E Jeftovic, founder of Bombthrower and CEO of easyDNS.com, points out that bitcoin typically experiences four pullbacks of 20% or more a year.

“I’ve seen worse. [Lots] of times. We will see worse in the future. We may even see worse now.

“This is what an unfettered, unmanipulated, non-curated market looks like,” says Jeftovic.

If the Federal Reserve follows through on promises of four or even seven interest rate hikes this year, this will likely trigger a $400 trillion exodus from the global bond market and some of this will end up in cryptos.

If even a small fraction of panicked capital in search of sanctuary from a falling bond market finds its way into bitcoin, there will be a monumental decoupling of cryptos from stocks and bonds.

Cryptos, led by bitcoin, have shown a correlation with traditional financial markets in recent months, but Jeftovic says BTC should be seen as a short on fiat currencies and bonds and a “never [expiring] call option on long volatility”.

“Bitcoin may more accurately be viewed as the Short Everything trade,” he writes.

Source: CoinMarketCap and Visual Capitalist

Kraken Intelligence’s technical analysis of the market should give long-term crypto holders some cause for hope.

BTC is trading at 1.85 times above its 200-week moving average ($19 427), down from last week’s multiple of 2.19 times. Should it return to its long-term historical average of 10-15 times above the 200-week moving average, this would imply a price of $194 270 to $291 405.

This is not to suggest that cryptos could not fall further from current levels.

Blockchain research firm Glassnode says long-term bitcoin holders appear unfazed by the recent price drop. “The proportion of long-term holder supply has actually returned to a modest uptrend, which indicates a general unwillingness for this cohort to liquidate,” it says in a recent blog post.

“Alongside declining prices, investors have capitulated over $2.5 billion in net realised value on-chain this week. The lion’s share of these losses are attributed to short-term holders whom appear to be taking any opportunity to get their money back,” says Glassnode.

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How much of the trade in crypto is buying & selling “old” already mined crypto and how much is newly mined supply?

Say one takes 2021 Bitcoin:
1 January there were xxx in existence
31 December there were xx more in existence

Everybody wants a piece of something nobody understands.But we stay married to them .That is crypto for you

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