Bitcoin: Back to the Roots

Never say “never.” The benchmark cryptocurrency collapsed to $3,800 at the end of last week and had unsuccessful attempts to get back above $5K over the weekend.

The overall financial markets panic amplified the sell-off impulse, despite many central banks, including the Fed, cutting their rates and increasing QE and liquidity measures.

Markets took this decision as a sign of the regulator’s panic. Indeed, if the world’s largest central bank were confident in economic prospects, it would have waited three days to announce new measures at the scheduled meeting. Anyway, it is essential for crypto traders that the sale-off of assets around the world pushes down Bitcoin too. And all capital is flowing into several major currencies.

Such news are not set to a positive mood even if one believes that the cryptocurrency will get support on the back of a new global economic crisis. All market participants saw how Bitcoin was sold together with other market instruments. Opinions on reasons are also divided. One side blames institutional investors. Another – believes that institutions have nothing to do with this, and blames doomsters with a high leverage. All opinions may be correct at once.

Nevertheless, in a week the crypto market lost $89 billion of capitalization. Hardly anyone will be very frightened by this on the traditional financial market, where we have already talked about trillions of dollars. So what do we expect shortly for Bitcoin and then for the whole crypto market? Even with the significant rebounds, you can see that there are still more sellers than buyers.

The dynamics of the markets in recent days clearly shows that the crypto market has room to decline even at the current lowest levels since mid-February (capitalization was $300 billion).

However, it is worth trying to look at the situation from a different angle. Most of the decline occurred against the background of a surge of panic, which means that such a sharp decline may be short-lived.

Sooner or later, the dust will settle. Once again, the same issues as they were 12 years ago in the midst of the global financial crisis will be on the agenda: trust in the traditional financial system and fear that the endlessly running printing press will devalue capital.

Also, Bitcoin has established itself in recent years as a means of payment and capital saving in countries where borders have been closed, and capital flows frozen. Isn’t that what we see now? Bitcoin may not replace the dollar or the euro in the coming months, but in a number of smaller countries where local currencies are flying into the abyss, it may prove to be a safe-haven for capital.

by Alex Kuptsikevich, the FxPro senior financial analyst