Cryptocurrency markets continued to sell-off Friday as investors were shaky upon the Bitcoin plunge that shocked the market yesterday. Traditional markets rebounded today after coming off the worst session since 1987. After President Trump announced a "national emergency", traditional markets skyrocketed nearly 2,000 points to close out Friday's trading. Where does Bitcoin price go from here?
Bitcoin Price And Altcoins Have Investors Confused
Bitcoin price shocked investors yesterday when its value fell nearly 50%. The altcoin markets are still highly correlated to Bitcoin price and therefor sold off drastically. Yesterday was not the only bearish day for the markets. The cryptocurrency market as a whole has struggled the last week posting the following results below.
|Cryptocurrency ||5 Day Performance|
At the time of this report, XRP price decreased the least the last 5 days, but that's not saying much since it still managed to drop -37%. Even investors that are diversified in cryptocurrency markets took a big hit this week. In traditional markets, investors can limit their downside risk during times like this by getting into sectors that have historically been recessionary proof such as utilities. Among a list of all cryptocurrencies, they've still lacked the ability to differentiate from Bitcoin price action. This stems from the fact that many altcoins have not built enough utility yet. A pure example of this is the list above. You can see that nearly all altcoins have been experienced similar price action to Bitcoin price the last 5 days.
Many Believe Bitcoin Failed A Big Test
During the recent global uncertainties in the stock market, many "bitcoiners" believed it was the perfect opportunity for Bitcoin to shine. Bitcoin was essentially marketed after the financial collapse of 2008, to be a peer-to-peer financial protocol that did not depend on third party entities. With Bitcoin historically being an uncorrelated asset, many investors believed it would hedge an environment where markets are experiencing recessionary pressures and Coronavirus. The exact opposite happened this week, as Bitcoin tanked nearly 50% yesterday.
As Visionary Financial mentioned in a recent report, this has resulted for numerous reasons. This week, most investors were primarily concerned with liquidity ( selling stocks and flocking to safe haven assets such as treasuries ). The baby boomer generation is nearing retirement and simply doesn't have patience for volatility or speculation. Despite Bitcoin being labeled as a "safe haven asset" , its infrastructure is still completely different in that it offers more volatility and speculation than any other traditional "safe haven asset." In addition, not enough of the population has ever invested in Bitcoin in the first place. In the current environment, the average investor is not in the position to "try something new."
Bitcoin Liquidity Cycle - Why Excessive Selling Occurred
Many investors in traditional markets invest in assets that aren't very liquid. Investors rushed to assets this week that had a lot of liquidity. This is why you saw your most popular stocks sell-off, because they offer a lot of liquidity. Bitcoin on the other hand is very liquid as well. This can explain the massive amounts of selling we saw this week. The problem though resides within the full "liquidity cycle" of Bitcoin. Yes Bitcoin can be sold quickly on an exchange, but getting that to your bank is a different story. Many exchanges have "withdrawal limits", which limits the capital from truly being liquid. If a cryptocurrency exchange only lets you transfer $500/day to your bank, that's an issue for investors that want liquidity. It's completely different from traditional markets where many brokerage accounts are directly tied to bank accounts. This issue most likely caused excessive selling in Bitcoin this week. Investors didn't want to take their chances with volatility and instead sold more bitcoin than they probably needed. Until all that capital gets to the investors bank account, it's virtually unusable.
Bitcoin Technical Analysis
As discussed above, Bitcoin price fell -50% yesterday and has fallen -40% the last 5 days. With the Stock market rallying nearly +2,000 points on Friday it will be interesting to see if Bitcoin price changes sentiment. Right now Bitcoin needs to hold $5,100 support levels. In terms of changing sentiment, Bitcoin needs to surge passed $6,450 to create some positive momentum. If price can't hold $5,100 levels, it could very well test $4,600 on the downside.
Traditional Markets - Markets Recapture Some Losses Friday
This week, the Dow Jones had its worst trading session since 1987 when it fell -2,300 points. The Federal Reserve was forced to step in and agreed to inject $1 + trillion into the financial system. The shaky week in the markets was fueled by Coronavirus, oil prices, and treasury yields. We enter a time now where the Fed doesn't have many options. They've been reducing rates for years and now enter an environment where interest rates could very well go negative. With this being said, their only option is to inject more capital into the markets. They believe this will ease sentiment, but it can also have detrimental results. It should ease sentiment in the short-term, but eventually the Federal Reserve will run out of options. Entering a negative interest rate environment with $20+ trillion in debt is a disaster waiting to happen. The chart below displays the Dow Jones price action the last 5 days.
President Trump Declares National Emergency - Markets Rally
On Friday about 30 minutes before the markets closed, President Trump held a press conference in which he declared Coronavirus a "national emergency." In doing so, it allows his administration to dip into $50 billion in financial resources. After the announcement, the stock markets rallied. The Dow Jones recovered some losses, posting the largest single day run since October 2008. Investor sentiment was very shaky this week, and his announcement definitely created some positivity. Next week will be very interesting for traditional markets. It will also be important to follow Coronavirus developments over the weekend.
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