What crypto traders know about Bitcoin price volatility

24 May, 2021
What crypto traders know about Bitcoin price volatility

Shock. If you’re new to crypto trading and bought Bitcoin in the recent mad rush to acquire the world’s first cryptocurrency, that may be what you’re feeling right now.

But if you’re a Bitcoin veteran, the massive drop in BTC’s price isn’t anything new. Because this flagship crypto coin has taken big hits before, only to rise again. That’s what BTC hodlers (holders) know about Bitcoin that newbies may not.

So what's caused Bitcoin's latest downturn?  The mainstream media is quick to point to two major factors: a tweet from one of the coin’s major influencers, Elon Musk, followed by news from China regarding the regulation of cryptocurrencies.

First, let’s take a look at the numbers.  BTC hit an all-time high of $64,829 in April as the mainstream media suddenly took a frenzied interest in crypto. The run-up was fueled by several factors reported almost on a daily basis. Institutional investors and financial institutions, including JPMorgan, Goldman Sachs, and Mastercard announced new crypto programs and services for their clients. Elon Musk announced that Tesla would accept Bitcoin. Non-fungible tokens (NFTs) became all the rage. And Dogecoin, the crypto that started as a joke, took on new life.

Fear of Missing Out (FOMO) was now at play, and a new crop of retail investors jumped into the crypto market, hoping to capitalize on the craze.

And then, it happened.  Citing environmental concerns, Musk reversed position on accepting Bitcoin as payment, tweeting, “We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.”

The tweet is credited with starting the current Bitcoin slide, as the coin’s price plunged 17% in as little as two hours.

“Investors widely blame the tweet for starting bitcoin’s most punishing selloff of the year, a rout that has shaved hundreds of billions of dollars off its market capitalization and has erased gains made since late January,” the Wall Street Journal reported this weekend.

As the coin struggled to regain its price last week, it suffered another fall on the news from China's State Council which announced it would not allow financial institutions to engage in crypto-related transactions.  "We should crackdown on bitcoin mining and trading activities and prevent risks from being passed to the whole society," the Council said.

While there are other factors currently at play in the market, history shows that Bitcoin downturns are often precipitated by one or two highly visible incidents.

Bitcoin’s March 2020 plunge to around $4,000 from $10,000 is credited to the coronavirus pandemic.
A drop of 83% in December 2018 was largely due to a $530 million crypto exchange hack.
And the infamous “Crypto Winter” which began in 2017 is also credited to Chinese regulatory proclamations.

“Today's crypto crash is nothing new,” The Motley Fool reminds us. “Bitcoin has crashed 80% or more three different times since 2012, according to Visual Capitalist. With this context, we see that the current 41% drop is rather mild by comparison.”

While an 80% drop in price may sour those new investors who quickly entered – and also exited the market in recent days, those who understand the coin’s history are hanging in.

As the Wall Street Journal points out, “Someone who bought the cryptocurrency two years ago would still have more than tripled their money. A five-year holder is sitting on gains of over 6,000%.”

Crypto investor Mike Novogratz remains bullish on the entire crypto market. He told Markets Insider he was confident that "the best projects with utility and community will survive and thrive.”

“The ride up was relatively smooth,” Joshua Lim, head of derivatives at Genesis Global Trading said to Barron’s. “What a lot of people forgot is that crypto is prone to these massive drawdowns and liquidations that are due to leverage getting triggered.”

Currently, TradingView's Technical meter lists Bitcoin as a "Strong Sell." And for those who are new to Bitcoin, that may be what they want to hear.

But for those with deep roots in the crypto market, Glassnode, the on-chain data platform sums it up best in this week’s market report.  “Overall, the Bitcoin market is in a historically significant correction. There are strong signals that short-term holders are leading with panic selling, however, long-term holders are stepping in to buy the dip and their confidence is largely unshaken.”

Famed investor Bill Miller summed up the entire situation in an interview with CNBC. “If I liked something at higher prices it is a safe bet I will like it even more at lower prices,” he said.

Spoken like a true Bitcoin hodler.

Joyce Pavia Hanson