Bitcoin has recorded its highest sell-off since mid-February as investors rushed to take profits following a misleading tweet by FXHedge regarding the U.S. Treasury’s investigation into institutions using Bitcoin for money laundering.
Sunday’s crash is the biggest fall by monetary value in the history of Bitcoin. The hourly candle showed a decrease of roughly $8,000 on April 18, to a low of $50,931, losing 15% in the last 24 hours alone. However, the price of Bitcoin has already recovered somewhat. At the time of writing, it’s trading at $54,400 as it did not go under the $50,000 support level.
Bitcoin’s flash dip affected the entire market. Altcoins such as Ethereum, Cardano, and Litecoin suffered even steeper losses averaging down by 15% or even more than 20%. Following the tweet, Bitcoin’s market cap dropped by $288 billion in just 55 minutes.
Bitcoin Under Social Scrutiny
Despite institutions such as JP Morgan claiming Bitcoin is becoming less volatile with a medium risk of investment, the coin is still susceptible to emotional trading. FXHedge’s tweet regarding the U.S. Treasury’s investigation into money laundering has stirred up market uncertainty. However, the account has a strong history of tweeting misleading information.
Jake Chervinsky, the general manager at Compound Finance, stressed that the tweet itself is “not credible.” Not only does the tweet seem opinionated, but it also takes the U.S. Treasury’s information out of context. The U.S. Treasury does not investigate money laundering issues. Moreover, the announcement, posted by the U.S.Treasury on April 15, targets Russian financial institutions, which hold fiat currencies alongside Bitcoin.
Bitcoin’s flash dip results from market uncertainty that began on Tuesday, as the leading cryptocurrency retested the previous resistance level. Turkey’s Central Bank announced that they would no longer accept cryptocurrencies and other digital assets as a form of payment. As a result, the price of Bitcoin retraced by 4% after passing the $60,000 mark.
Bitcoin’s sudden price drop is also associated with a decline in hashrate, which occurred at a mining farm in Xinjiang. The hashrate decreased by 40%, and there are no records of blocks being mined between 1 AM and 3 AM European time. Although such an incident isn’t entirely responsible for Bitcoin’s market price, as hashrate drops have occurred in the past, it does correlate with other negative news about Bitcoin.
Bitcoin’s bullish momentum means that traders have hedged their bets for a future price increase. With Bitcoin reaching a new all-time high, the total market of futures positions has increased to $27 billion. More so, with the sudden price drop, more than $9 billion long margin positions have been liquidated. While the bullish sentiment is growing as the crypto market is entering a price discovery era, volatility is yet to be fully addressed.
On the Flipside
- The massive dip in Bitcoin is a potential for investors to increase their position at a discounted price.
- Social media has a strong influence on market sentiment, and accounts with large followings can manipulate the market with ease.
- Previous U.S. Treasury news about cryptocurrency financing terrorism has not significantly impacted the price of Bitcoin.
Speculation Dictates The Crypto Market
Ledgermatic’s CEO, Luke Sully, has stated that the massive sell-off of Bitcoin was caused by the increase in news about the China mining blackout. Cryptocurrencies, similar to the markets, operate on price speculation based on news and data. However, as previous price actions of Bitcoin indicate, the coin has managed to regain momentum despite massive sell-offs.
Market corrections in the crypto market are a common occurrence. What’s more, Bitcoin has a higher threshold of resistance than gold. Thus, the price of Bitcoin often corrects as low as 40% of the total price, as happened in 2017, before regaining upward momentum. As traders often stress, a correction provides stability to the market as it shakes off weak hands and creates a steady and normal price movement.
The cryptocurrency market is yet to be heavily regulated, and price volatility is a common occurrence. Just as investors have already forgotten about the market correction in February, they will soon forget about the same event in April. With more institutional investors joining the cryptocurrency bandwagon and investing in Bitcoin as a store of value, price volatility can occur due to the weak hands of retail investors.
Still, investors are informed about Bitcoin uncertainty. However, as cryptocurrency can yield higher profits, market peaks and lows are often disregarded and ignored.