REASON FOR BITCOIN MASSIVE SELL OFF? Learn my personal opinion and share yours
INTRODUCTION
After such a negative december, it seems that many people (including myself) expected the month of January to be quite good for crypto markets. Most of those I talked to shared a common belief that it would be very unlikely for Bitcoin to drop below $43k level of support. A level which has been "tested" a number of times.
And yet, we were all played out as Bitcoin dropped much lower recently, all the way to $41k and a little bit under.
This caused many people to seek answers for this recent unexpected price drop and as usual - many different explanations popped up left and right. Some are so absurd that I won't even bother to mention them.
Also, I'm fully aware that pointing at one particular reason for any dump is at least tricky, and many investors will repeat the common mantra of, "if someone tells you the REASONS WHY the markets crashed then this person is a liar".
And it may be as well true, however I would like to discuss this topic, and learn about your opinion on this subject.
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FED and INSANE TRADING VOLUMES
Just the other day, FED came up with some worrisome announcement which shaken investors confidence all around the world. It even brought Nasdaq and Dow Jones down by few %.
Representatives of the FED announced that on top of slowing down with money printing, another measure will be taken to fight inflation. They plan to reduce FED balance sheets, and this is surely quite unexpected news which naturally shook the market.
However, such an announcement could not explain WHY BITCOIN TRADING VOLUMES increased by 300% within a span of just a few hours from $27mln to nearly $90mln.
That is MASSIVE!
And it surely had to be caused by something else than just FED alone.
I didn't see such a high daily trading volumes in many months. And I'm not sure if I've seen 300% volume jump in past few years.
KAZAKHSTAN and its impact on the price of BITCOIN?
I believe that at this stage most of us read or listened to news on the difficult situation in Kazakhstan. Events unfolding over there are scary and unrest seems to be spreading fast across the country.
It took me a while to connect the dots and come to the conclusion that what is happening in this particular country could be the cause for massive bitcoin sale-off. The one which we have just witnessed.
Why?
Simply because Kazakhstan = approx 5% of the entire Bitcoin network.
5% of all miners are apparently located in this country. Many moved from China a short while back and made Kazachstan their new "home".
Now those miners are facing extreme political unrest, and to make things worse - the internet in the entire country has been shut down. Therefore, operating in such conditions may be just too difficult, and most of those miners will seek other places to move their mining facilities.
And that process is very costly. Which could easily explain where that sudden huge supply of bitcoin came from to the markets (urgent need for FIAT coming from miners located in Kazakhstan). It could also explain volumes increasing 3x within just a day.
MY QUESTION IS:
What could be the short term and long term impact of those 2 events in your opinion? Announcement by the FED and crisis in Kazakhstan?
I tend to believe that within a few days nobody will remember what the FED said. But the situation in Kazakhstan may force even more miners to relocate to other countries and this process may take some time. Just like it did (on a much bigger scale) during the recent miners crackdown introduced by CCCP.
ANY OTHER REASON?
Would anyone be able to point out any other reason why Bitcoin plummeted right at the start of 2022? What could explain such large trade volumes?
Yours, @crypto.piotr
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The great thing about Bitcoin being decentralized… new nodes could be popped up anywhere…that's why Bitcoin is so versatile, so flexible…because it has such a high fault tolerance in these kinds of events. So I'm not worried about Kazakhstan… just like I wasn't worried about China continually restricting crypto.
The Federal Reserve, the ECB, BOJ and the PBOC…have the greatest impact on crypto prices because they control credit. And that would probably be the majority reason why pretty much all financial assets (including crypto) decreased in price.
Credit drives finance and builds economies… it should not be underestimated.
Hi @fijimermaid
Overall I do agree. However, how to explain trading daily volumes on BTC increasing to record levels (from average $25-30mln to almost $90mln)? FED announcement didn't do it (otherwise we would see this dump few days earlier).
It surely does. Noone denies it. But markets already reacted to FED annoncement and by the time BTC went down below $40k - it has been already priced in (plenty of time to do so)
My outlook on why, how and when people/whales/institutions buy and sell financial assets is based on sets of time and events, not on a specific time or event.
So you may get selling on Monday, but the reason for the selling was because of last Tuesday, and the Wednesday before that, and the second Friday of last month, etc… People that have a lot of capital to unload, do it over longer periods of time, therefore they have to look at trends, not an event.
For example, if I'm a large Institution, and I have billions of dollars of assets to offload on the market… it's going to take me 12 months to do that. I can't sell it all in one day or week. If I do that, with the amount of assets that I’m selling, it's going to trigger auto selling from other players all over the market, and I won't be able to get the price that I want because my selling is suppressing prices.
So I have to sell, then pause, then people get optimistic and start buying again at those “discounted” prices, which increases prices, then I start selling again… that is why you get a “stairs” look to market sell-offs.
With BTC volume exploding like you said, that has happened on a pretty consistent basis with BTC over the past 10 years…so it's really not unprecedented…although it's surprising in the moment.
And with the specific FED announcement…that's one part of a larger picture. It's not just one FED announcement
It's the trend that these whales are looking at. The selling that we're seeing today was triggered by sets of events that happened 2 years ago to the present.
Greetings @crypto.piotr
I believe you covered the two most important points that are happening right now in terms of bitcoin movement. I agree with you that in a few days nobody will care about the FED situation but the Kazahstan situation is very serious.
Furthermore, we should not forget that this drop surprised a lot of people forcing them to sell of some of their holdings because of overleveraged positions. I know that this topic was discussed to death in the past months but I do think this is a point worth mentioning as well.
Regarding the Bitcoin miners, I think that they will relocate and during this time the remaining miners around the world will keep the network secure. The only real issue I could see happening is a hard winter in texas which could hit some more miners that are located there. This could trigger another spiral downwards.
In the case that there is no more "bad" political events, I see Bitcoin recovering again. I dont know how fast or how far but I definetly see it happening.
Great read! :)
Thanks for sharing your view @ga38jem
I believe that miners will not need much time to relocate to another country. We've witnessed similar problem on much bigger scale once CCCP announced crack down on Bitcoin miners in China. And few weeks later this event was already just a "thing of the past".
You've also mentioned overleveraged investors. Good point.
There will be many places around the world, which will struggle with similar problems as Texas did last year. Energy prices are skyrocketing and blackouts are becoming quite common all over the world.
I see current energy crisis as a major challenge to bitcoin network. Maybe more miners will move to El Salvador, where unlimited Volcano energy is planned to be used to mine BTC.
Any thoughts on that?
Cheers, Piotr
Good point with El Savador. There might be a trend that some miners will move to El Savador, but once other countries will recognize that parts of their economy is moving to a different country they will probably make sure that they have an equal opportunity for those who want to leave.
I think this will prevent a monopoly of miners in El Savador in the long run which is a good thing because decentralization is a good for Bitcoin overall.
Hello Dear @crypto.piotr. This is a really interesting topic since most of the investments in many countries nowadays are taking cryptocurrencies as a reference and as always at the top of them the bitcoin even if its popularity is going down a little bit. One of the reasons explained by the FED has to do with the fact that cryptocurrencies such as bitcoin and etherum are behaving in the market in a very similar way to treasury bonds. In this case the FED is talking about its intention to reduce the balance sheet in Q1 2022. However, I agree with you that this should not be the only cause.
The second reason seems to me the most logical in terms of the socio-political situation in Kazakhstan, if we think about it, since there is a considerable volume of miners there, who can no longer operate due to the lack of minimum conditions and high interest rates and are moving to another part of the world to continue their operations, logically they must carry out sales actions in large volumes to be able to move and find a new place to operate. This situation may extend for a few more months as it is not easy to locate a new mining site and it seems that the problems in Kazakhstan are only getting worse. From politics there are reasons to think that this may be a strong consequence for the bitcoin crash. In this country (Kazakhstan) Russia has leased a spaceport for $115 million per year hence Russia's interest in sending troops to end the conflict within Kazakhstan. This cooperation between the two countries has its core in the commercial relationship and the future of Russia's space travel and its desire to venture into space tourism, one more reason to invest in cryptoassets, another point is that economically speaking in Kazakhstan there is uranium and oil that is also extracted in cooperation with Russia in this sense with the help of the Russians is already planned the construction of a nuclear base in Kazakhstan all this keeps the market of both cryptocurrencies and international stock exchanges in a strong tension because we are talking about two major investments in minerals and energy on the one hand uranium and on the other oil that have been affected by the unrest.
Some economists say that after the first quarter of the year there can be a very important rebound of bitcoin if investors are able to withstand the pressure and create long-term orders, which from my point of view is a great challenge, it is mentioned that by closing the short-term orders and generate new long-term orders can stop the impact of the massive sale and recover rates, there are those who mention that it can reach a rupture that exponentially reaches $ 90,000. Now we will have to wait for the banks and the Federal Reserve to slow down the attack a little to make it clear what the reason or reasons really are, I think it is a mixture of both plus Russia's interest in Kazakhstan's energy reserves.
Such a brilliant feedback @emimoron
Thank you for taking the time to share your thoughts with me.
Solid upvote on the way :)
I believe it is the Kazakhstan political unrest that has caused the price fall in BTC, because I have read and watched different crypto content creators pointing towards that direction as the cause in unexpected price movement of BTC.
Some people believe Kazakhstan house over 5% of BTC miners and that's a huge number of miners and if most of them should sell their position it would have a great effect on the price of BTC, and this will lead to panic sells from other investors around the world.
I have no clue when we see a change in the price movement, because it got scary when BTC reached $39k, hence, anything is possible, as we can see the price fall to as low as $30k, which will affect the ALTs market greatly. Let's hope for the best.
Nice informative and interactive topic @crypto.piotr
hi @menoski
If FED announcement and unexpected situation in Kazakhstan drove down prive of Bitcoin by ONLY one level of support, then I wouldn't be afraid of reaching $30k. It would mean, that BTC need to drop this support line and also another one (at approx $34-35 level).
It would require some massive negative news. Possible, but not very likely to happen.
ps. Solid upvote on the way :) Thanks for that comment
Yours, Piotr
BTC is showing quite a good sign for just getting only below one level support, inspite of both negative news. It's quite encouraging for holders and the entire cryptocurrency sphere.
Hello @crypto.piotr
I agree with you, there is no single or reason why the crypto market is in this price zone, the FED is only one chess piece therefore other pieces and moves should be considered to have a broader optics of the reasons that undermined the crypto price, the Kazakhstan thing may make sense, more however, the percentage may not correlate with the sales that executed some whales that drove the price to the current zone.
From my perspective the first quarter will be key, this if we take into account that the institutions that last year participated in the crypto market will return to the scene in these first menes, therefore, I believe that after these first three months we will have a clearer picture of the direction of the market.
Best regards, be well.
Hi thanks for coming up with such an interesting question although you have pointed out with good fact important reason behind price drop.
I shared a post here explaining leverage trading impact on traded position.
Leverage traded position closed up when there is high volatility which leads to market liquidity as traded high leverage position get liquidated the price of bitcoin tends to drop which also affect btc dominance.
Leverage trades is also a contributing factor to price drop.
Greetings @crypto.piotr, certainly the Kazakhstan situation had a negative impact on the market, the closure of the internet caused a big impact on BTC mining, now the FED announcement for me did not affect the market is more the situation of the middle east country.
But perhaps there is another reason that we are not seeing and this added to the problems in Kazakhstan caused the BTC to break the support of 43K. The global economy is trying to shrink the cryptocurrency market and global banks are injecting liquidity to drive BTC down.
Indeed. I was following some "analysts" on Telegram and Youtube last month and none of them expected such a negative move for Bitcoin. Perhaps, we need to listen to Warren Buffett sometimes 😁 "Be fearful when others are greedy, and greedy when others are fearful."
Well, I think you're totally right and that Kazakhstan's bad situation is the black swan for the most react price action.
I stumbled across two articles by Reuters and CNN saying that the percentage is even much higher, about 18% !!
Thanks for bringing this topic up. Have a good day :))
Thanks buddy. I wasn't aware of that.
Hello @crypto.piotr!
While I was reading your post the main thing that popped into my mind is the situation in Kazakhstan which was pretty shared by people everywhere and it actually the most making sense one. A massive increase in the volume couldn't occur normally so, it must have been something that got a great portion of people who could affect the market, that occurred here.
I'm expecting some more unstable price for the next weeks, which sadly something I can never trade in, at least my skills aren't enough to understand how things really going to happen which might lead to more losses... So I will just wait for a more stable price over the weeks and for sure keep an eye on the news.
Thanks for sharing your opinion with us Piotr!