CRYPTO CORRECTION
Despite a steep decline in prices, Bitcoin inflows into exchanges are relatively low compared to past sell-offs
Crypto prices have seen some historic gains in the recent weeks and months, but unless you are an absolute novice you would know that this kind of price action in digital assets comes with huge corrections with extreme bouts of volatility, as we saw the one yesterday. And more often than not, these are associated with a catalyst that precipitates such a move. The most recent move saw Bitcoin drop to a low in the region of $30k while Ethereum plunged to a new low in the region of $1850. While the correction might not be over yet, most of the cryptos staged a strong rebound today — BTC & ETH trading close to $40k and $2740 respectively, at the time of writing.
Talking about the catalysts, first came Elon Musk, Tesla’s CEO and a champion of Bitcoin and Dogecoin tweeting that Tesla would no longer accept Bitcoin as payment for its vehicles — on the pretext of the amount of electricity it requires to mine Bitcoin. U-turn by self-proclaimed ‘Dogefather’ was enough to initiate the negative loop in the top digital assets. Then came the news yesterday of People’s Bank of China & several payment processors, reiterating that Bitcoin and cryptocurrencies are not actual currencies, and can’t be used for payments. And the crypto prices fell off the cliff.
Although these events are being widely considered as the reasons behind the current Crypto correction, here are my two cents. Just like any other mainstream financial asset, a correction is always a healthy sign. And considering the kind of all-time highs we have seen in the past few months, this was pretty much a given. And for the sake of clarity once again, Cryptos are really volatile and not for the faint of heart. Let’s get some historical perspective on Crypto volatility, just to give you an idea — price drops like the current one are much more common than you think.
2011 — Bitcoin soars from $1 in April to a peak of $32 in June. By November it’s worth $2.
2013 — Starting the year at $13, Bitcoin jumps to $220 by April, only to change hands at $70 two weeks later. The crypto then climbs from $123 in October, to $1156 by December, then tumbles to $760 in three days.
2017 — Trading around $1K in January, Bitcoin reaches nearly $20K by the end of the year.
2018 — Prices steadily decline, eventually tracking back to the $3,500 level.
2019 — Bitcoin tops $10K again over the summer, but ends the year at $7K.
2020 — Dropping to a low of $5,200 as the pandemic set in, the crypto goes on to reach $30K.
2021 — Momentum picks up as Bitcoin breaches $40K, $50K and $60K, before the most recent crash.
As far as Musk is concerned, we have seen many flip-flops from him on this matter and others. What you need to realize is the fact he is sitting on $1.5 billion worth of Bitcoin acquired recently that he does not intend to sell. For all I am concerned he might just be creating another opportunity to buy the big dip in Bitcoin. The Chinese central bank or most of the global central banks, for that matter, are just concerned that mainstream cryptos will be hard to stop at the current rate of adoption. PBC’s worries are a little more heightened with the digital Yuan in the final stages of launch.
Moving ahead with what the actual data suggests, the Chainalysis Market Intel report points out that despite the current steep decline in prices, Bitcoin inflows into exchanges are relatively low compared to past sell-offs. While the institutions don’t appear to be significant sellers right now, they may be more cautious as buyers right now.
Looking at the chart on the left (above) suggests that bitcoin inflows into exchanges are relatively low compared to past sell-offs — at 412k bitcoin in the last three days, compared to 412k on the 13 March 2020 alone. This suggests that much of the selling is from people with assets already on exchanges, which tend to be retail investors — weak hands are getting shaken off.
The chart on the right shows the change in bitcoin held by post-2017 investor whales for the 14 days before the price bottom of the current and past declines. Post-2017 investor whales are self-hosted wallets that have held at least 1k bitcoin in their lifetime, acquired this since the start of 2017, and who retain at least 75% of the bitcoin they receive.
The chart shows that investor whales bought 34k bitcoin on Tuesday and Wednesday, 18 and 19 May, after reducing their holdings by as much as 51k bitcoin cumulatively in the last two weeks. This is a stronger response than in March 2020. So investor whales currently appear cautious but low prices may be tempting them to buy the dip, rather than sell into it.
Putting it all together, the doomsday scenario that naysayers portray every time a major correction that happens is not going to pan out this time either. Get used to more fast-paced crypto action or bow out.
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Source: https://medium.com/technicity/institutional-investors-are-reluctant-to-sell-amid-the-crypto-prices-plunge-ad39b0a8d018?source=rss——-8—————–cryptocurrency
