It’s no secret that March 12, 2020 was one of the darkest days in crypto history. On that day, bitcoin (BTC) experienced one of the largest one-day price spikes in its 10-year history, going from $8,000 to a staggering low of $3,600 in just a few minutes, albeit briefly.
To put things in perspective, over $1 billion in BTC long positions were liquidated in just 24 hours, resulting in one of the largest drops in value the digital market has seen in its short history. Another way to look at the crash is that BTC has lost almost 50% of its value in the above time frame, which is staggering to say the least.
It’s also worth noting that bitcoin and many other cryptocurrencies had an extremely high correlation with the U.S. stock market in the same week, which was seen as an opportunity at the time, as investors generally had less appetite for risky assets, especially since the COVID-19 pandemic was just beginning to rear its ugly head.
The sharp correction in the US stock market – the Dow Jones index lost 2,300 points – was the biggest drop in 30 years. This correction, combined with a lack of demand for BTC, caused the cryptocurrency’s price to fall first to the $5,000 level and then to $3,600.
Is there another accident on the way?
To investigate the possibility that the crypto sector is about to experience another massive drop this month, Cointelegraph contacted CryptoYoda, an independent analyst and crypto-currency expert. According to him, the triangular combination of limited supply, ever-increasing demand and highly leveraged trading is a recipe for flashy crossovers and turbulent volatility, he adds:
We will continue to see many temporary setbacks as the markets manage to regulate and balance the intense emotions of individual and institutional investors and traders. We’ve simply never seen an experiment of this magnitude, with limited supply combined with insane demand and explosive tools like leverage, which will make for a pretty bumpy ride.
Hunter Mergart, head of US cryptocurrency exchange Bitstamp, said that although the structure of the cryptocurrency market has changed dramatically since March, the possibility of another collapse cannot be completely ruled out. In doing so, he explained that the cryptocurrency industry is now full of regulated cash trading methods, derivatives platforms that offer great liquidity.
Moreover, Mergart believes that compared to previous years, there are now many more active participants in the global crypto landscape who can help smooth out any imbalances, should volatility suddenly spike overnight for unforeseen reasons.
Anshul Dhir, co-founder and COO of EasyFi Network, the second largest lending protocol for digital assets, pointed out to Cointelegraph that there is now a huge amount of capital tied up in decentralized finance, with the crypto industry’s total market capitalization at over $1.5 trillion. However, based on this figure, Deere found that most positions were inflated even around 50.
This time it is different, really different.
While there is still some concern about the possible collapse of the crypto space, the general mood around it seems much calmer this time around. Thus, Chad Steinglass, head of trading at US cryptocurrency trading platform CrossTower, believes that although the anniversary of such a terrible low is approaching, there is no reason to worry about a repeat of such a scenario:
If March 2020 was a dark time for crypto, as it was for all global markets of all assets, then that is exactly what came immediately after the definition of digital assets. The Fed’s rapid and massive intervention to restore liquidity to financial markets is exactly the kind of activity that Nakomoto saw as the handwriting on the wall after the great financial crisis of 2008 and that led him to create Bitcoin.
He went on to say that the Fed’s response to COVID-19 was an affirmation of bitcoin’s original thesis and set in motion the 11-month bullish trend. Steinglass said the Fed has shown no signs of tightening monetary policy and that even Congress, despite the partisan stalemate, has shown it will continue to inject stimulus into the economy until the corona recession is completely gone in the rearview mirror.
Moreover, given the steady influx of institutional investors – and the fact that a major new player in traditional investing announces its support for digital investing almost every other week – it seems unlikely that a major correction will occur unless the Treasury Department or the Securities and Exchange Commission unexpectedly issues prohibitive regulations, which seems highly unlikely at this point.
The only caveat Steinglass has on his otherwise bullish position is the possibility of some profits from US investors who may have bought BTC on speculation and waited for the calendar to expire for tax reasons. However, I expect that the amount of BTC these sellers will sell will be relatively small in the grand scheme of things, he added.
Daniele Bernardi, founder of PHI Token and Diaman Group, believes the collapse of the bitcoin price last year and the collapse of financial markets around the world is entirely due to the pandemic outbreak. In this regard, he told Cointelegraph that such an event was unlikely to occur again:
All assets, even gold and commodities, were hit hard by the uncertainty surrounding the development and spread of the pandemic. So in my opinion, the bitcoin movement was more about irrational and emotional selling of everything by investors, an effect known as systematic risk, than it was about bitcoin itself.
Is it safe to hold?
While the events of 12. While we are currently witnessing the USD’s March rate hike, most technical indicators suggest that the possibility of such a scenario repeating itself seems unlikely.
Similarly, many of the coronaviruses that dominated around this time last year – and seem to have been the main cause of the disaster – are now largely gone, especially as vaccination begins to spread around the world.
If there’s one thing the crypto currency market has taught its participants over the years, it’s that in this niche, anything is possible. Therefore, any prediction of future price movements is nothing more than a reasoned guess, and any unforeseen global event could rearrange the cards for bitcoin and paint a very different picture.
frequently asked questions
Will cryptocurrencies rise if the stock market crashes?
The cryptocurrency space is marketed as an alternative to golf investments and the returns are safe compared to other investments like stocks. So when the stock market collapses, the demand for places to put your money goes up.
What happens to bitcoin if the stock market crashes?
If a stock market crash leads to a global recession, bitcoin will suffer along with the rest of the world. People need to pay their bills, debts and groceries, and few merchants accept bitcoin.