Bitcoin – The Bears are in Control, Supported by the Proof of Keys Event

Bitcoin fell by 3.08% on Thursday, reversing Wednesday’s 2.17% gain, to end the day at $3,924.3.

The reversal came alongside the broader market, with the top 10 major cryptos seeing red through the day.

Tracking the broader market, Bitcoin slid from a start of a day intraday high $4,056.6 to a late afternoon intraday low $3,875.1, Bitcoin falling through the first major support level at $3,949.97 to come within range of the second major support level at $3,851.13 before moving back through to $3,900 levels.

For the Bitcoin bulls, giving up $4,000 levels will have been key, with Bitcoin having fallen short of the first major resistance level at $4,115.57 at the start of the day.

The reversal through the day came as the cryptomarkets prepared for the much hyped Bitcoin Proof of Keys event, with some investor concern over exchange solvency testing sentiment through the day.

In the heat of the global financial crisis, bank runs were a frequent occurrence, Lehman Bank’s collapse driving depositors to withdraw funds from their accounts elsewhere over concerns of a collapse of the financial system

The Proof of Keys event has been launched for two distinct purposes. Firstly, to incentivise Bitcoin holders to transfer their Bitcoins to private wallets, where they are then in control of their private keys, hence the name of the event. Following a number of thefts that led to over $1bn in cryptocurrency thefts in 2018 alone, hackers able to steal cryptocurrencies held on exchanges, there’s certainly good reason for investors to hold onto their Bitcoin and altcoins in private wallets. The only risk of loss is if an investor loses their private keys…

The second, and possibly as significant, reason for the event is to determine exchange solvency. During the global financial crisis, financial institutions had to ensure that there was sufficient liquidity to meet withdrawal demands of depositors. In the Proof of Keys event, there is some concern that some of the smaller exchanges, the market will be hoping that there are no major exchanges, may face a solvency issue, which would ultimately highlight question whether the Bitcoin’s held by an investor on an exchange actually exist.

So on the one side, investors moving Bitcoins from exchange wallets to private wallets would reduce the centralized element of the cryptomarket, which is the use of exchanges to store cryptocurrencies, and on the other side, it will ultimately demonstrate to what degree investors have been manipulated, if at all, solvency a must in the decentralized world of crypto.

Cold hard data is unlikely to be available this time around, but any news of an insolvent exchange, particularly one of the larger ones, and expect some market panic.

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At the time of writing, Bitcoin was back in the red, down 0.39% to $3,908.8, with moves through the early morning seeing Bitcoin fall from a start of a day morning high $3,924.3 to a morning low $3,890.0 before moving back through to $3,900 levels.

While the day’s major support and resistance levels were left untested early on, direction in the day ahead will be hinged on the outcome to the Proof of Keys event, any negative news likely to weigh, though it may not be as bad as one would assume, with a large number of Bitcoin holders reportedly unaware of today’s event.

For the bulls, an early move back through to $4,000 levels would ease investor jitters, with Bitcoin needing to move through to $3,950 by the early afternoon to support a run at $4,000 levels.

Failure to move through to $3,950 could see Bitcoin pullback through the morning low $3,890 to bring the first major support level at $3,847.4 into play, with more material losses possible should the crypto news wires deliver bad news in the day.