What some traders have come to call ‘Red Sunday,’ saw Bitcoin price and that of Altcoins plunging as much as 15%. This came after Bitcoin prices hit a new ATH of $64,000 following Coinbase’s listing on NASDAQ.
The highly volatile digital asset has known for its high volatility, but such a flash crash has not been seen this year. Data from Asset manager Blockforce Capital reveals that Bitcoin’s annualized volatility from April 2020 to February 2021 is up to 114.51%. This high volatility of Bitcoin price has been witnessed in late 2017 when it rises to almost $20,000 and immediately plummeted to almost $3,000 the next year. This shows that bitcoin prices can jump a lot up to and down.
However, it is widely unclear what had caused ‘red Sunday’ and many bitcoin investors, as well as crypto enthusiasts, posits it could be any of the following;
Strict regulatory fears.
As cryptocurrencies continue to change industries from art to real estate and gaming, regulators are also on the hunt to best control them, ban them, or even create their own cryptocurrency, with China Bahamas leading the way on the introduction of their one central bank digital currency. This has always been a thing of fear in the crypto market.
On Friday, following the Coinbase NASDAQ debut, Bitcoin dropped by 4% after the central bank of Turkey had announced its ban on the use of cryptocurrencies. In the same vein, India was reportedly looking to set laws that will prohibit the use of cryptocurrencies and fine anyone trading or holding them.
There was also speculation that the United States Treasury would be taking action against major finance firms for laundering money through cryptocurrencies. These could have been the reason for the fall in Bitcoin price as newbies in the Bitcoin market fear and sell off their coins.
The bitcoin mining town blackout.
Another reason could be the blackouts in the Chinese Bitcoin mining region of Xinjiang, where a major blackout had affected the mining of bitcoins. This region is also known as one of the major cheap sources of power for Bitcoin mining.
- Other reasons will include over-excitement from Coinbase NASDAQ listing, which made lots of people buy, and this could be Bitcoin price going through a major correction.
What Does this Means for Bitcoin Prices?
While bitcoin price was already under pressure and had fallen by 4% on Friday, it went further down to $52,000, plummeting more than $7000 within an hour. At a particular point in Sunday, it was below its all times high by 20%. Other cryptocurrencies also witnessed this; for example, Ethereum fell by 18%.
However, while there are many reasons for the ‘red Sunday’ bitcoin price flash crash, we have always seen a fall in bitcoin price to be met with a higher increase in its market capitalization. For example, in 2017 and in March, early this year, when it had crashed to $34,000 after hitting a new ATH of $42,000. Come Monday morning, Bitcoin price was already trading above $57,000. Could this mean this same thing as witnessed in March?
The difference between cryptocurrencies and Fiat digital assets is its Democratization and decentralization features, and this means that with bitcoin prices, there have come to be a larger number of institutions, firms, and investors playing in the market, and no single large holder can have a huge impact on the bitcoin market as seen in 2017, where more than 95% of the bitcoin supply was held by less than 2% of its investors and Bitcoin prices can be looking enticing in a few days.
Another fact that could affect bitcoin prices is the interest and goal of payments platforms and other finance firms such as Amazon, Tesla, J.P Morgan, and Goldman Sachs to incorporate bitcoins, which could help bitcoin price move back up.
However, it is pertinent to remember that another feature of bitcoin besides volatility is that there is not a lot of fundamentals metrics to help understand where bitcoin prices are going, and so bitcoin price can sway in any direction.