On March 12th, Bitcoin dropped to approximately $3,800 per BTC. Close to the lowest point since 2017’s bubble, the price drop correlated with a global market crash. Coronavirus fears and travel bans caused even the traditional stock market to tumble at historic rates. While the Dow Jones remains suppressed and volatile, something curious happened with Bitcoin. Since the drop, cryptocurrency prices across the board have slowly increased. Bitcoin itself recovered above $6,000 – over 80% of the pre-crash price.
As more details emerge, it became apparent that Bitcoin’s trading volume exploded during the crash. Coinbase saw record traffic volume as traders went into overdrive. Although it resulted in a major drop, the price action came with a silver lining. Compared to previous high-volume periods, Bitcoin saw limited transactional friction and most exchanges performed flawlessly. This speaks to a much matured industry compared with the 2017 bubble – where transactions often took hours and cost exorbitant fees.
Did Institutional Investors Jump Ship?
The much-touted entry of institutional investment brought added capital to the cryptocurrency space. As traditional derivative markets entered into Bitcoin trading, prices crept up. Yet, it appears that those same investors may have been responsible for the crash. As longs were liquidated, many of these investors bailed out of the space entirely. That sudden vacuum caused the crash to worsen in the short term.
Bitcoin’s relatively steady growth over the past year lulled these investors into a false sense of security. Now, they appear spooked. CME Group’s Bitcoin options are effectively stagnant, with almost no activity compared against Bitcoin’s volume. The same is true of Bakkt, suggesting that this class of investor cannot stomach the volatility inherent in the cryptocurrency sector.
The Near Future of Bitcoin
Despite the institutional exodus, Bitcoin and other major cryptocurrencies continue to recover. Compared against previous drops in price, this recovery time is near-miraculous. It suggests a resiliency that the space previously lacked. In effect, Satoshi created Bitcoin for this exact scenario. As global economies stand of the precipice of total collapse, Bitcoin offers a safe haven.
Yet, investors should remain wary. While traditional markets continue their slow bleed, the overall situation appears stable. Many are waiting to see the next major shift – positive or negative – that comes in relation to the coronavirus pandemic. Outside of a sudden recovery from the pandemic, the next major news cycle is likely to be bad. A national U.S. quarantine or grounding U.S. flights could trigger another crash – for both stocks and Bitcoin.
Article By: Adam Stone